Gold price and oil correlation : Oil prices have been falling in the past two weeks due to market concerns about OPEC oil-producing Congress’s increased supply, increased concerns about COVID-19 mutant strains, and poor fuel inventory data. West Texas Intermediate crude traded at $65.99 a barrel on Tuesday morning, and Brent crude traded at $68.24 a barrel, the level two months ago.
This marks a sharp reversal of the trend after oil prices hit a multi-year high a few weeks ago, which naturally raises the question: Is the oil price rise too far and too fast?
Gold price and oil correlation : Bullish oil will be happy to hear that there is still room for oil prices to rise compared with gold. You know, oil and gold are the two commodities of greatest concern in the world, and it is not surprising that the trends of both often follow.
Martijn Rats and Amy Sergeant of Morgan Stanley said in a recent study that although historically, the price ratio of oil to gold has not reflected the future trend of oil prices, it is necessary to seek Investors guided by oil price trends may still have the potential to interest them.
So, what is the current Gold price and oil correlation trend?
Look at how many barrels of oil an ounce of gold can buy at any time, that is, how many barrels of oil can be bought per ounce of gold.
The analysis shows that since 1946, the average ratio of gold to oil has been 1 ounce of gold to buy 16.53 barrels of oil. At any time, an ounce of gold can buy more than 16.53 barrels of oil, which means that oil is either cheap or expensive. Conversely, as long as an ounce of gold is purchased below 16.53 barrels, oil is considered expensive, and gold is considered cheap. Understanding this can help investors decide whether to buy more oil, sell gold, or take the opposite approach.
In the latest time frame, in 1998, oil was cheap and gold was relatively expensive. In 1999-2000, oil prices rose by 66%, while gold remained basically flat. In the early 2000s, the price of gold became very cheap again relative to oil, rising from $271 in 2001 to $1,669 in 2012, when oil prices fell again. It is worth mentioning that this is only the average annual price, which means that investors do not need to grasp the opportunity accurately to take action.
In 2019, the average price of oil was $50.01 per barrel and the average price of gold was $1514.75, which means that an ounce of gold can buy a little more than 30 barrels of oil. In 2020, that proportion soared to 54.87 barrels per ounce astronomical figure, more than three times the long-term average. This year, the proportion dropped to 27.60 barrels per ounce of gold, 67% higher than the long-term average.
The last time the ratio was in the “normal range” was during the collapse of oil prices in 2014. After peaking at $107.95 per barrel on June 20, 2014, crude oil prices plummeted to $44.08 per barrel in just seven months on January 28, 2015.
So it can be said that despite the terrible oil price collapse in 2014, it only represents a return to the average, while the 2020 sell-off is a little too serious.
The outlook for gold is still uncertain, and rising inflation data support the rise of gold prices, but the increasingly tough Fed said it would stop the “feast”. Assuming that the price of gold stabilizes at $1,821 per ounce, oil prices need to climb to $110 per barrel before the gold-to-oil ratio returns to the historical median. Suddenly, Bank of America’s recent forecast that oil prices may reach $100 a barrel by 2022 no longer seem far-fetched.
The relationship between oil price and inflation (gold price and oil correlation)
In addition, the oil market still needs to climb another worrying wall, and investors face another potential enemy: rising inflation.
The United States recently tried to appease concerns that rising inflation could damage the economic recovery of the United States and undermine his $4 trillion spending plan. Previously, as the economy continued to recover after the related lockdown imposed by the novel coronavirus, inflation in the United States accelerated in June to the fastest growth since 2008.
According to the U.S. Department of Labor, the Consumer Price Index (CPI) rose 5.4% year-on-year in June, excluding the core price index of food and energy rose 4.5% year-on-year. Rising inflation is due to the demand for goods and services beyond the ability of enterprises to keep up with supply bottlenecks that restrict semiconductors and solar energy, huge stimulus funds and soaring personal savings rates in the United States.
Republicans have seized on worrying inflation trends and opposed Biden’s ambitious spending plan, saying that the United States is unable to afford additional government spending proposals that may boost the economy.
The government may be upset about the high price of oil and gasoline, not only because of the role of oil in determining inflation trends in history, but also because they pose risks to Biden’s future political ambitions.
gold price and oil correlation : Oil prices and inflation are causal. As oil prices rise, so will inflation. On the other hand, inflation tends to fall as oil prices fall. This happens because oil is a major input in the economy, and if the cost of input rises, the cost of the final product will also rise.
Fortunately, the link between oil prices and inflation has been significantly reduced since the 1980s.
For example, during the 1990s and the Gulf War oil crisis, although the price of crude oil doubled in six months, from $14 to about $30 a barrel, inflation remained stable. The decoupling between the two indicators became more obvious during the increase in oil prices from 1999 to 2005, with the average annual nominal price of oil rising from $16.50 to $50 a barrel, while the CPI rose from $164.30 in January 1999 to 196 in December 2005. .80 US dollars.
However, the government may start to worry about high oil prices, because it is well known that gasoline prices can have a huge impact on consumers’ psychology. The current price of gasoline in the United States is $3.16 per gallon. Although this is only 20 cents higher than the average price of the past decade, it is exactly $1 higher than last year’s price.
The price correlation between crude oil and gasoline has changed a lot over the years and is disadvantageous to consumers. Most states have raised gasoline taxes, refineries face new regulations to increase costs, and there is a shortage of truck drivers delivering gasoline to gas stations.
What will happen? gold price and oil correlation
“Today’s $100 oil price may bring us closer to the $4 per gallon mark,” said Patrick De Haan, an oil analyst at GasBuddy.
For drivers, the threshold of $4 is undoubtedly a pain point. $4.17 is the highest oil price after the oil price reached $145 per barrel in the summer of 2008.