Analysts at Morgan Stanley believe the ratio between two of the world's most-watched commodities is "worth highlighting," saying it may be of interest to those seeking guidance on the direction of oil prices.
"The oil-gold ratio has historically been a poor indicator of future oil prices," Morgan Stanley's Martijn Rats and Amy Sergeant said in a research note published Monday.
"However, it is interesting at its extremes."
Crude futures tend to be supported during periods of high inflation, while gold is traditionally used as a hedge against inflation. This positive correlation has often meant higher oil prices have coincided with higher gold prices, although one does not directly impact the other.
The ratio between oil and gold illustrates how many barrels of oil are needed to buy an ounce of gold.
At present, international benchmark Brent crude futures are down more than 35% year-to-date, on pace for their worst year since 2015. In stark contrast, spot gold futures are trading up over 19% this year, on track for their best year since 2010.
As a result, the U.S. bank said the oil-gold ratio was currently trading in its 99th percentile since 1980, despite recovering from a more than 40-year low in late April.
Rats and Sergeant explained that, when expressed in ounces of gold, the current oil price was found to be "broadly on-par" with the ratio's 1986 low and around 20% cheaper than the low in early 2016.
Therefore, "for the oil-gold ratio to return to its historic median, oil prices would have to rally by (roughly) 160%," they said, noting this forecast assumed gold prices would remain unchanged.
"Against this bullish top-down backdrop, oil prices could continue to rally, especially if the bottom-up fundamentals also point in this direction."
Brent crude futures traded at $42.65 a barrel on Tuesday afternoon, down around 0.1%, while U.S. West Texas Intermediate futures stood at $39.89, more than 0.6% lower.
Spot gold futures traded at $1,800 per troy ounce, roughly 0.1% lower for the session.