We are horrified by Russia’s tragic invasion of Ukraine, the killing of innocent people, and the wanton destruction of cities.
Strangely, given the profound nature of the situation, the prices of gold and oil — and how they translate into gasoline prices at the pump — give a market-based insight into how deeply disturbed the world is.
Because of its high value, portability, and acceptance in all markets, gold is sometimes called the disaster hedge. Those fleeing a war-torn area, for example, often take gold coins or dust.
Looking at a few snapshots of quickly changing prices, gold fetched $2,066 an ounce on March 8 — the highest price since 2020. This was up $150, or 7.8%, from $1,916 on Feb. 23 (the day before Russia invaded Ukraine). On March 9, with sanctions placed on Russian oil by the United States and the United Kingdom, gold closed at $1,993.70, dropping about 3% from the previous day. For now, the market hints that unease is leveling off. On March 15, in interday trading, the price was down to $1,922.
Changes in oil prices convey valuable information about the availability of a crucially important resource and can inspire energy-conserving innovation and rerouting of substitutes. On March 8, crude oil was fetching $128 a barrel on the Chicago Mercantile Exchange, up from $92.80 (or 38%) since Feb. 23. Obviously, world petroleum markets were more disturbed by the invasion than were gold markets. On March 15, the early morning price was $92.33, slightly below the Feb. 23 price and down substantially from the March 8 reckoning.
Regular observers sometimes look at the number of barrels that can be purchased with an ounce of gold. Doing so avoids problems with changing currency values and acknowledges that international oil traders may prefer to think in these terms, rather than dollars, euros, or rubles.
From 1990 through 2015, this measurement cycled at around 15 barrels of oil per ounce of gold. Things changed after 2015 when a major innovation in U.S. fracking entered the picture. From there, oil got cheaper and the fluctuation is around 20 barrels for an ounce of gold. But on March 8, the ratio came back down to 16.1 — well below the 20.6 that could have been purchased on Feb. 23.
Things apparently began to improve in petroleum flows and on March 15, an ounce of gold fetched a bit more than 20 barrels. As horrible as things looked otherwise, we were getting a positive signal on the prospects for better petroleum prices and, let us hope, for an end to the war.
But sadly for U.S. consumers, on March 15, the average U.S. price of gasoline still stood at a lofty $4.31 a gallon. Gas prices are driven by more than just the price of crude. Other factors include refining capacity, transportation, and spring revisions in the formula required by EPA for major urban regions.
While these measuring rods can’t tell us everything, or even scratch the surface of the full human toll of an invasion, they remove some of the guesswork from complex market shifts and reveal trends. The war picture is constantly changing, but so are the prices. Even outside the conflict zone, we continue to see signs of disruption, especially the significant gasoline premium being felt, and some acceptance of it.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.
