The physical and chemical properties of gold make it a very valuable element with numerous applications. It is used in sectors such as industry, technology, medicine, and jewelry, and is also an excellent asset in the investment universe. Also, as it is a very rare precious metal compared to others, it gives it even more value. Investing in physical gold has become a highly demanded option for many investors, and it is even now possible to buy gold online easily and safely.
When we talk about investments, gold is appreciated by comparison with other assets. Making certain comparisons can help us determine its value. In fact, in addition to the price of gold, some measures can tell us where it is concerning other precious metals, raw materials, or investment assets such as bonds or shares. By this, we mean gold ratios.
What Are Gold Ratios?
The ratios are comparisons that are made with elements that share a series of qualities with gold, such as its condition as a raw material, precious metal, or investment asset, for example, and help us analyze the prospects for the evolution of gold.
A ratio is a quantified relationship between two magnitudes that reflects their proportion. In this case, one of these magnitudes is always gold, and the other varies depending on the element with which you want to compare.
Three ratios are considered the most important and on which analysts focus to analyze the nearest future path of gold: the gold/silver ratio, the gold/Dow Jones ratio, and the gold/debt ratio.
The Most Important Gold Ratios: Gold/Silver, Gold/Dow Jones, And Gold/Debt
Gold/silver ratio: this magnitude indicates the number of ounces of silver that can be bought with one ounce of gold. Of all the comparisons that are made with gold, the gold/silver ratio is the most used. One aspect to take into account when we talk about this ratio is that silver appreciates more than gold in bullish periods.
Gold/Dow Jones ratio: can help detect the flow of money that occurs between the stock markets and gold. It measures how the Dow Jones Industrial Average, an index that measures 30 large companies in North America, evolves about an ounce of gold. Gold and the Dow have always been inversely related, meaning when the economy is good, the Dow is more attractive and there is little incentive to invest in gold. Conversely, when the Dow Jones is undervalued, gold is an asset to own. The gold/Dow Jones ratio can be an excellent tool to identify the change in a wealth cycle from the stock market to gold and vice versa.
Gold/debt ratio: in this case, gold is related to the average debt of the countries of the world. It is the ratio with the least mobility since the debt situation cannot change in the short term.
Other Ratios To Take Into Account
The ratios mentioned above are the most prominent, but others may be important to some investors at any given time:
Gold/oil ratio: the number of barrels of oil that can be bought with one ounce of gold. The higher the ratio, the cheaper oil is relative to gold. It must be remembered that oil is a commodity that affects the global economy. Its production and consumption are indicators of economic activity, and changes in its price affect consumer prices and generate inflation, which leads to changes in monetary policy, also creating a notable impact on the economy.
Copper/gold ratio: when the price of copper falls, it usually indicates that a recession is coming. Considering that gold is an excellent safe-haven asset when gold rises it means optimism for an economic expansion, while when gold rises it is the opposite. By dividing the price of copper by the price of gold, we can get a view of the economic expectations of the market.
Ratio HUI (Bux Amex Gold): this is an index of companies involved in gold mining, and whose gold protection coverage is limited to periods of up to 18 months. It is a very valid ratio to anticipate gold trends.