The Gold/Oil Ratio Says Volatility Is Coming To The Market

The stock market has gotten off to a rocky start in 2015.

And according to this chart from Kit Juckes at Societe Generale, more volatility could be in store.

The chart below measures the price of gold measured in barrels of oil, which has been associated with spikes in equity volatility over the last twenty years.

The most recent spike in the price of gold measures in barrels of oil takes it above its 1993 and 1998 highs, and as Kit Juckes as Societe Generale notes, “these have been associated with a pick-up in volatility as investors search for safe havens.”

Juckes notes, however, that this chart is presented at least a little bit tongue in cheek.

“Playing with casual correlations and ignoring anything nasty like causation, spikes in the gold/oil price correlate with VIX spikes and therefore with equity corrections and in FX markets.”

On Tuesday morning, the price of oil was breaking down again with West Texas Intermediate crude oil prices falling below $US45 a barrel for the first time in years as the price of gold was modestly higher to just below $US1,240 an ounce.

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