LONDON, Oct 20: The gold to nickel price ratio, a key indicator of economic performance, could fall into single digits if the recession is as deep as that of the early 1980s, Deutsche Bank said.

Such a slip in the ratio would indicate a sharp move higher in gold or a slump in nickel prices.

The 43 per cent decline in the S&P 500 since October 2007... indicates equity markets are pricing in a downturn equivalent to the events of 1973-75 or 1981-82, the German bank said in a note at the end of last week.

This would imply the nickel to gold price ratio could fall to between 7 and 12. This would tend to indicate that either gold prices have to rally significantly above $1,000 an ounce or nickel prices are set to fall towards $8,500 a ton.

Spot gold was trading at $803.30/805.30 an ounce, while nickel was quoted at $10,550 a ton. This indicates a ratio of around 13.

The ratio is an illustration of how the base and precious metals respond to economic downturn, the bank said.

While falling growth cuts demand for steel -- in which nickel is a key component — gold and the other precious metals typically do well in a low-interest rate environment.

When global growth is under attack, the nickel to gold ratio falls significantly, Deutsche Bank said. Since May 2007, the nickel to gold price ratio has fallen from 70 to 15.

We find that the low point in the nickel to gold price ratio has tended to be related to the severity of the downturn in global growth.—Reuters