Oil priced in gold: a century of stability

The long-run number

Across the 20th and 21st centuries, a barrel of crude oil has cost roughly 0.02–0.03 ounces of gold on average. In 1946 it was ~0.027 oz. In 1973 (just before the oil shock) it was ~0.012 oz. In 2008 (the dollar peak) it was ~0.10 oz. In 2020 (negative oil prices in dollars) it was ~0.005 oz. Today it sits near 0.025–0.03 oz — almost exactly the long-run average.

What this tells us

Most of "oil price volatility" is currency volatility. Two real, scarce, physically demanded commodities — gold and oil — have a much more stable relationship with each other than either does with the dollar.

A useful rule of thumb

If oil is significantly above ~0.04 oz of gold, it is historically expensive in real terms (an oil shock). If it is below ~0.015 oz, it is historically cheap. This single ratio has been a better long-term valuation signal for oil than almost any dollar-based measure.