Gold vs. Oil: Diverging Price Paths Signal Economic Trouble and Potential $4,000 Gold
Tuesday, May 20th 2025
As recession fears mount, investors are increasingly turning to gold as a safe haven, propelling prices to $3,400 an ounce. According to Bloomberg Intelligence’s Mike McGlone, the growing disparity between gold and oil prices is signaling deeper economic concerns that could push gold prices even higher.
A Historic Price Gap
McGlone, Senior Commodity Strategist at Bloomberg, highlighted a striking divergence in a Tuesday research note. “In the past century, the current 50% price gap between oil and gold is the fourth largest since 1925,” he said, emphasizing that oil has dropped nearly 21% year-to-date, while gold has surged by 26%.
This discrepancy, he noted, mirrors market conditions seen during major economic downturns, suggesting that the global economy may be in for a rough ride.
Gold Rallies as Oil Falters
Gold kicked off the trading week with a solid performance, bouncing back from last week’s lows around $3,200 an ounce. By Tuesday, spot gold was trading at $3,411.90 per ounce, extending Monday’s 3% rally with another 2% gain.
In contrast, oil prices remain under pressure. On Monday, West Texas Intermediate (WTI) crude oil futures dropped below $56 per barrel before recovering slightly to $59.17. Despite the rebound, oil remains well below key resistance levels, further underscoring the market’s bearish outlook.
Comparisons to Past Crises
McGlone drew parallels between the current price action and historic market patterns, particularly those seen in 1935 and 2007. Gold’s 30% rally to its April high of $3,500 aligns closely with past economic crises, reinforcing concerns about an impending recession.
He noted that while U.S. tariffs and government austerity have contributed to the current market dynamics, the trend toward safe-haven assets like gold was already underway well before the 2024 U.S. presidential election.
What’s Next? Potential for $4,000 Gold
Despite gold’s impressive run, McGlone believes the rally is far from over. “We see crude’s low-price floor forming around $40 per barrel and gold’s next major resistance at $4,000 per ounce,” he said. “If the U.S. stock market dips lower, that could be the catalyst to get us there.”
McGlone also pointed to the SPX/gold ratio, which currently sits at about 0.64x — well below the historical average of 1.5x. According to him, the S&P 500 could drop to 4,032 points in the event of a recession, setting the stage for gold to rise to parity with the index.
Finding Support Levels
On the downside, McGlone believes gold has established a strong support zone at $3,000 per ounce, making it a potentially safer investment in an increasingly uncertain economic landscape.
For investors, the widening gap between gold and oil prices could serve as a stark warning of what’s to come — and a compelling case for further gains in the precious metal.
