Understanding The Gold & Oil Trade: No Longer Do You Need Mentors

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In our third series we're going to explain to you the relationship between gold and inflation, but have you ever wondered about the relationship between the gold price and the price of other commodities, such as oil? Robert Wilson, Chief Commodities Analyst at 2 A.M Capital Prestigious Investments, spoke with the many university professors during their commodity segments about how oil price movement affects gold.
Gold and oil each have an inflationary relationship.
Gold and oil have a relationship through commodity indices. In other words, when energy prices and the price of energy-related commodities go down, so do oil prices. When this happens, managers of oil companies end up selling “millions of ounces of gold” that they have kept as a protective hedge .
The relationship does break down at times and is not perfect. For example, oil prices haven’t moved much for 2-3 years whereas the gold price has been more volatile.
Sharp movements in oil prices have the strongest effect on gold, particularly if related to geopolitical events
Chinese buying has kept the gold market alive at this price.Consumer demand from China has stabilised the gold price and explains the reduction of volatility in the gold market.
As can be seen in the interactive charts in our 3rd series the sharpest rises and falls in oil prices are usually accompanied by large changes in the gold price , and both oil and gold have an inverse relationship with the U.S. dollar .
If commodity fund managers use gold as a safe-haven for their $100 billion investment funds, don’t you think your portfolio should include gold as well?