Why cheaper oil is gold’s new best friend

Spot gold climbed 1.6% to $4,129.69 an ounce early on Monday 9 November, CNBC reports, after gaining about 5% last week. December futures rose 1.6% to $4,139. The trigger was oil, which fell after President Trump said he was “highly unlikely” to order further attacks on Iran while talks continue. The dollar softened as well, which makes bullion cheaper for overseas buyers.

The figure is a snapshot from the Asian session. When this site’s morning edition was written a few hours later, the ticker showed $4,108.07, still up 0.91% on the day but below a session high of $4,133.64.

How oil came to matter so much

The link runs through inflation and interest rates. Higher crude lifts inflation expectations, those expectations keep central banks tight, and gold pays no yield, so higher rates raise the cost of holding it. Cheaper oil loosens each step of that chain.

Ten days ago the same chain ran the other way. Kitco reported that spot gold fell below $3,900 on 30 October even though the dollar and bond yields weakened that day, and explained it by saying oil had become the market’s main concern (see Gold’s one-year low). On 2 November, Brent’s 7.6% fall on reports of progress in talks helped gold rebound. Monday’s move is the same trade again.

Tim Waterer, chief market analyst at KCM Trade, put it to CNBC this way: “Trump’s more conciliatory tone toward Iran is helping keep a lid on oil prices.” He said that eases the inflation pressure that had weighed on the metal, alongside a modest pullback in the dollar.

What else moved

As reported by CNBC early on Monday 9 November. Silver’s side of the move is in Silver’s comeback week.

What could undo it

investingLive calls this support fragile: if oil reprices higher, it says, the inflation and rates channel would likely turn back against gold. Its report lists reasons that could happen. Secretary of State Marco Rubio described talks with Tehran as not productive, a suspected Iranian drone strike halted output at a major Iraqi gas field, Houthi forces hit targets in Riyadh including the Aramco Tower, and both sides reported shipping disruptions around Hormuz.

The other test is data. US consumer prices for October are due on Tuesday and producer prices on Friday. Waterer told CNBC: “Any hot readings would likely firm the dollar and lift the odds of a December rate hike.” Markets already lean heavily that way, as Rate hikes, not cuts sets out.

These are the views of the analysts and publications named. This site does not forecast the price, and nothing here is advice. The current figure is on the gold price page, and what moves the gold price explains the wider mechanics.

Every figure here is as reported by the publications listed under Sources, at the time they reported it. Prices move; the live gold price has the current one. Nothing on this page is investment advice.