As a gold buyer, you likely understand the relationship between gold and inflation, gold and silver, and maybe even gold and interest rates. But do you understand the tricky relationship between gold prices and crude oil prices? America’s Gold Authority® is here to break it down for you in plain and simple terms.
Oil and Gold Prices Tend to Move in Tandem
We know that the prices of gold and crude oil—sometimes called “black gold”—fluctuate over time. But how closely connected are these price fluctuations? It turns out there’s a strong connection, but not always what you might call an apples-to-apples relationship.
Research published in 2017 in the journal Economic Research found that when oil prices go up, this leads to less disposable income for consumers to spend on cars, electronics, and other goods. That scenario can, in turn, lead to inflation. Inflation can cause a rise in gold prices, as some gold buyers view the precious metal as a hedge against inflation.
Therefore, a change in oil prices can sometimes be a predictor of a change in gold prices. Over the long term, gold prices tend to move up and down in tandem with oil prices, according to OilPrice.com.
So more than 60 percent of the time, there’s a direct relationship between gold and oil prices, according to MarketRealist.com.
Oil and Gold Prices Historically Rise When the U.S. Dollar Falters
Another factor in the bridge between gold and oil prices: the U.S. dollar. MarketRealist.com reminds us that when the U.S. dollar rises, the prices of gold and oil typically fall. The opposite normally occurs when the U.S. dollar falls. “Because gold and crude oil are dollar-denominated assets, they are strongly linked,” the website notes.
While gold and oil prices historically move in the same direction, Yahoo Finance points out that the correlation between gold and oil prices is as complicated as a long-term relationship.
Yahoo Finance explains that gold is a safe-haven asset, whereas oil is a “risk asset.” Gold takes its price cues from broad market sentiments and inflation expectations, while oil relies mostly on the balance between supply and demand.
“However, both are broadly driven by expectations of long-term economic growth. So these two assets could show a significant correlation,” Yahoo Finance notes. “However, that doesn’t necessarily mean that both of the assets are impacting each other. It could be the result of other variables that may be common to both of them.”
Oil and Gold Prices Are Positively Correlated—Mostly
Kitco Contributor Mickey Fulp explains that the prices of gold and oil are, for the most part, “positively correlated,” but the price of oil tends to be more volatile. According to Fulp, shifts in gold and oil prices can be dictated by:
- The health of the global economy
- Economic or geopolitical uncertainty, resulting in people turning to gold as a safe-haven asset
- Supply and demand fundamentals for oil
- Geopolitical events that disrupt oil supply and delivery
- Buying and selling of gold by central banks
- Trading of both commodities through ETFs, futures, and other vehicles
In the end, gold and oil might be viewed more like cousins than siblings in the broader family of commodities. They share some financial DNA, but they’re certainly not twins.
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