Oil & Gold- Divorce, or Happy Reunion?

• Print
• E-Mail

"I don't see oil coming down, at least not sharply," he said. "So this suggests to me gold is undervalued relative to oil and that the adjustment is more likely to come through a rise in gold prices and not a decline in the oil price."

Others downplay the link between gold and oil when forecasting a longer-term outlook. Jon Nadler, analyst with Kitco Bullion Dealers, said traders historically have watched links between gold and other markets as well, including foreign exchange, equities and bonds.

"There is no particular rulebook that says a particular ratio must be achieved," he said. "They're working on different fundamentals." For one thing, he said that oil is consumed, while gold doesn't disappear. Mined gold exists in many forms such as jewelry or investment bars put into storage.

"Imagine if all of the oil consumed would somehow magically recycle itself and exist above ground," he said.

Nadler suggested a bigger key for gold will be the dollar, and whether it rises if the Federal Reserve stops cutting interest rates, or continues to hike. Gold tends to move inversely to the greenback, so if the dollar firms enough,

Nadler said gold could fall back to the $780-$730 area. If in fact gold strays from oil, he said, this also could mean the metal finds some support even in the event of pullbacks in crude.

"It will depend on what happens with the dollar and on physical demand on the gold side," he said.