Gold & Oil (9 of 16 Articles Series)
A correlation between gold and oil prices is a complex relationship that has been studied for many years. It is important to understand the nuances of the correlation in order to make accurate predictions of the future.
The relationship between gold and oil prices has been studied since the 1970s [1] ever since former President Nixon decided not to honor backing the US Dollar with gold and rather making oil or the petrodollar the force backing the US Dollar instead.
It has been theorized that the correlation is primarily driven by the market forces of supply and demand [2] considering oil as the prime force driving global economy.
This means that when the demand for oil increases over time, the price of gold tends to increase as well.
In addition to the market forces, there are other factors that can affect the correlation between gold and oil prices [3] which are oil-driven factors.
These include geopolitical events, economic conditions, global supply and demand, and economic activity in certain parts of the world.
These factors can all contribute to the correlation between gold and oil prices, and it is important to take all of them into account as a package when making predictions about the future of gold and oil prices [4].
In other words, if alternative energy for example become a considerable player into global economy at the expense of conventional fossil fuel, then this will free gold being influenced not only by global oil demand but also by the US Dollar as well since it is pegged to purchasing oil with, hence the petrodollar.
Therefore, alternative energy or any other instrument that could limit demand of conventional fossil fuel such as global warming accords may be considered as a threat to the global dominance of the US Dollar as the world reserve currency and if this happens then market price of gold would be freely floating so much sky is the limit!
As always, it is important to consult with a financial advisor before investing to ensure you make the best decision for your situation.?
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Motaz AlBashitie