Traditional thinking was that when oil goes down, gold goes up. It may have been true 50 years ago, but today, how the markets rise and fall has become more complex.
Things have changed since the financial crisis of 2008. In the past, crude oil prices were used as an indicator of inflation or deflation, which made sense at the time. It was thought that when oil is not in demand or oversupplied prices and drop, that the demand for gold increases. But recently, we have not seen evidence of this trend. In fact, oil prices do not correlate with gold prices at all.
The gold and oil prices fluctuate due to changes in supply and demand, geopolitical factors, strength of the dollar, monetary policy, and market sentiment.
We have reviewed our data that compares crude oil and gold prices over the past five years.
2019-2024 Oil and Gold Prices Compared
| Gold vs Oil | Gold | Oil | Ratio | |
| January 1, 2019 | $1284.90 | $56.54 | 22.7 | |
| June 4, 2019 | Up/Down | $1327.00 | $53.48 | 24.8 |
| December 31, 2019 | Up/Up | $1900.80 | $48.52 | 39.2 |
| June 1, 2020 | Down/Down | $1750.30 | $35.54 | 49.2 |
| January 5, 2021 | Up/Up | $1960.60 | $49.93 | 39.3 |
| June 2, 2021 | Down/Up | $1916.50 | $68.83 | 27.8 |
| January 4, 2022 | Down/Up | $1822.60 | $76.99 | 23.7 |
| June 2, 2022 | Up/Up | $1876.80 | $117.36 | 16 |
| January 4, 2023 | Down/Down | $1863.20 | $73.15 | 25.5 |
| June 1, 2023 | Up/Down | $1991.60 | $70.07 | 28.4 |
| January 4, 2024 | Up/Up | $ 2056.30 | $72.39 | 28.4 |
| June 3, 2024 | Up/Up | $2361.40 | $74.22 | 31.8 |
Looking at the prices over the past five years, we have yet to notice a direct correlation between oil and gas prices. We have found correlations with the dollar’s strength, monetary policy changes, and market sentiment, but not with oil.
Case Studies: Recent Market Events People Use to Illustrate the Relationship Between Oil and Gold Prices
These case studies highlight how various market events, ranging from geopolitical tensions to economic downturns, can influence oil and gold prices. In the past, these examples were used to prove that oil and gas prices correlate. If the information is looked at differently, one could conclude that oil and gold prices do not always correlate.
This year, gold and oil, and even silver prices have been increasing at record rates.
Global Financial Crisis (2008): Oil Down/Gold Up
- During the global financial crisis of 2008, oil prices experienced a decline as demand decreased.
- Gold prices, on the other hand, surged to record highs as investors sought safety from market turmoil and concerns over dedollarization.
OPEC Production Cuts (2016): Oil Up/Gold Up
- In late 2016, the Organization of the Petroleum Exporting Countries (OPEC) announced significant production cuts.
- The news of production cuts led to a rally in oil prices.
- Gold prices also saw an upward trend as investors interpreted the OPEC decision as a signal of potential economic uncertainty.
COVID-19 2020: Oil Down/Gold Up
- At the height of the pandemic, the demand for oil severely dropped. For months, travel nearly ceased, people stayed home, and businesses closed.
- Oil prices then plummeted. Gold has been on the rise since.
Inflation 2022: Oil Up/Gold Up
- Crude oil hits an unusual high of over $100 USD per barrel when inflation was over nine percent.
- Gold prices rose slightly, which is common during times of inflation.
Why do Oil and Gold Prices Not Correlate?
There are many reasons gold and oil prices do not correlate. Although many may choose to have both in their portfolios depending on their personal financial strategies.
Here are a few reasons these two commodities may not correlate.
How they are Utilized: Oil is an attractive option when times are good, and the transportation and manufacturing industries are doing well. On the other hand, investors flock to gold when times are challenging. They use gold to store wealth.
Price Influencers: Gold and oil prices are influenced by different drivers. Oil prices are influenced by geopolitical factors and changes in production levels. Gold prices, on the other hand, are influenced by factors such as inflation, currency movements, interest rates, and investor sentiment. Both are commodities whose prices are based on supply and demand fundamentals, which also accounts for the availability of substitutes.
Supply: Oil and gold supply dynamics differ significantly. Oil production may be influenced by geopolitical events and technological advancements. Gold supply production is relatively stable, with new supply primarily coming from mining operations and central bank sales.
What Does This Mean to Investors
As with any significant investment, investors should never rely on any one indicator to make an investment decision. In recent years, oil and gas prices have increased independently of each other as they are influenced by different factors.
If you are interested in investing in gold, review the factors that influence gold prices.
What influences gold prices?
- Interest Rates
- Central Bank Policies
- Market Sentiment
- Inflation and Currency Movements
- Supply and Demand
- Geopolitical Events
- Speculative Activity
In the past, gold and oil prices may have correlated, but we are not seeing a strong correlation in recent years.
To summarize, the relationship between gold and oil prices has changed. The old idea that they move in opposite directions no longer seems to apply. Today’s market dynamics involve many factors, such as supply and demand, geopolitical events, the dollar’s value, monetary policies, and market sentiment. These factors mean that gold and oil prices can move together or separately. Investors should look at a range of influences when analyzing these commodities, rather than relying on outdated assumptions.
