Gold Prices: Two Key Ratios Say Bottom Is In

Gold_PricesThere are two indicators I closely follow to gauge where gold prices are headed. And right now, they are saying the bottom is in for gold and that higher prices are in the cards.

Gold-to-Oil Multiple Screams Higher Gold Prices Ahead

The first such indicator is the ratio of the price of gold to the price of crude oil, often referred to as the gold-to-oil multiple. To see how accurate this indicator has been in predicting the direction of gold prices in the past, please see the chart below. It plots the price of gold divided by crude oil prices over the past 20 years.


Chart courtesy of

Notice something interesting? Each time the gold-to-oil multiple got to a level over 24, gold prices subsequently went much higher.

The first circle I drew of the gold-to-oil multiple of over 24 happened in 1999. Following that, gold prices started their long upward trend from $300.00 an ounce. In 2009, the gold-to-oil multiple again rose to over 24 and subsequently, gold prices hit a record high near $1,900 an ounce in 2009. Today, the gold-to-oil price multiple is again over 24. Using history as a gauge, this indicator tells us sharply higher gold prices lie ahead.

Gold-to-Silver Multiple Says Higher Gold Prices Ahead

There’s another indicator that suggests gold prices could be bottoming, or already have bottomed. I’m taking about the gold-to-silver multiple. This multiple tells us how many ounces of silver it takes to purchase an ounce of gold at current market prices.

The chart below is of the gold-to-silver multiple from 1999 to today. Please pay attention to the circles I have drawn in the chart.


Chart courtesy of

At current prices, the number of ounces of silver it now takes to buy one ounce of gold is close to the same level at which in the past, when this level was reached, gold prices moved sharply higher. That figure is 74. Historically, whenever it takes more than 74 ounces of silver to buy one ounce of gold, gold prices subsequently move sharply higher. It happened in 2003, it happened in 2009, and we are there again today.

Gold Headed Past $2,000 an Ounce?

Dear reader, if you are a long-term reader of Profit Confidential, you know I have gone on record predicting gold will hit $2,000 to $2,500 an ounce, maybe even higher. Two historically proven indicators of future gold prices, the gold-to-oil and gold-to-silver multiples, are giving credence to my forecast for sharply higher gold prices ahead.

I see the depressed stock prices of major gold mining producers as a bargain at current levels.