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The ratio of gold prices to other asset classes has been shown to be a useful predictor of stock market returns. In this post, we discussed several gold-based ratios and how they can be used to forecast equity market performance.
 

Gold Oil Price Ratio As a Predictor of Stock Market Returns

Analyzing intermarket relationships between assets can help identify trends and predict returns. Traditionally, analysts use commodity, currency, and interest-rate data to predict the direction of the stock market. In this regard, Reference [1] brings a fresh new perspective. It utilizes price ratios of gold over other assets in order to forecast stock market returns.
 

Findings

-The gold-oil price ratio (GO) is shown to be a strong predictor of future stock market returns.

-Researchers created ten different gold price ratios by comparing gold to various assets like oil, silver, CPI, corn, copper, and several financial indicators.

-They used statistical models (univariate and bivariate regressions) to test how well these ratios could predict U.S. stock returns.

-Among all the ratios tested, the gold-oil ratio (GO) had the highest predictive power.

-A one standard deviation increase in the GO ratio is linked to a 6.60% rise in annual excess stock returns for the following month.

-The GO ratio performs better than traditional forecasting methods, including the historical average model.

-It also offers meaningful economic benefits for investors who use mean-variance strategies.

-The study concludes that the predictive ability of the GO ratio is both statistically reliable and economically useful.

In summary, the gold-oil price ratio is identified as a robust predictor of stock market returns, outperforming traditional predictors and other gold price ratios. A one standard deviation increase in GO is associated with a significant 6.60% increase in annual excess returns for the next month.

Reference

[1] T. Fang, Z. Su, and L Yin, Gold price ratios and aggregate stock returns, SSRN 3950940
 

The Bitcoin-Gold Ratio as a Predictor of Stock Market Returns

The ratio of gold prices to other asset classes has been shown to be a useful predictor of stock market returns. The previous article discussed how the gold-oil ratio serves as one such indicator.

Continuing this line of inquiry, Reference [2] examines the informational value of the Bitcoin-gold (BG) price ratio. The logic behind this metric is that Bitcoin represents a high-risk asset, whereas gold is traditionally viewed as a safe haven. Therefore, a rising BG ratio may signal increased investor risk appetite. It may also reflect growing optimism and interest in technological innovation, which boosts demand for Bitcoin. As a result, a higher BG ratio can indicate a tech-driven risk appetite that translates into stronger stock returns.
 

Findings

-The Bitcoin-Gold (BG) ratio is positively linked to U.S. stock market returns, especially during and after the COVID-19 pandemic.

-A rising BG ratio suggests increased investor risk appetite, as Bitcoin is seen as high-risk and gold as a safe haven.

-The effect of the BG ratio on stock returns remains strong even when using Ethereum instead of Bitcoin, showing broader crypto-gold relevance.

-The positive impact of the BG ratio also applies to the European stock market, not just the U.S., indicating global relevance.

-The main channel through which the BG ratio affects stock returns is investor risk aversion or appetite.

-The study uses various economic controls, like volatility, inflation, and liquidity, and still finds the results hold strong.

-There was no significant impact of the BG ratio on stock returns before the pandemic, suggesting this relationship is more recent.

-The BG ratio reflects shifts in market sentiment and offers a new tool for gauging investor behavior.

-Investors can use the BG ratio as a signal to adjust their equity exposure based on prevailing market conditions.

In summary, the paper makes a novel contribution by introducing crypto-gold ratios as reliable indicators of stock market direction across multiple regions.

Reference

[2] Elie Bouri, Ender Demir, Bitcoin-to-gold ratio and stock market returns, Finance Research Letters (2025) 107456
 

Closing Thoughts

Both studies show that gold price ratios can offer valuable insights into stock market returns. The gold-oil ratio (GO) stands out as a strong, traditional predictor, while the Bitcoin-gold ratio (BG) brings a modern twist by capturing shifts in investor risk appetite. Together, these findings suggest that combining safe-haven and risk assets in a ratio form can help investors better understand and respond to changing market conditions.

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