Oil Drags Gold Down

Monday, April 18, 2016

Gold and oil have been the two most interesting commodities to watch as of late, and now, they are playing off of each other. In fact, gold is down today thanks to issues that are happening in the oil market. Today, we'll talk about what's going on with oil, why it has anything at all to do with gold, and what we can expect to see from gold moving forward. So, let’s get right to it...

What's Going On With Oil

Yesterday was a crucial day for oil. You see, yesterday there was a meeting between OPEC leaders and large oil producers that are non-OPEC members. In fact, the meeting that happened was between the biggest oil producers in the world. The idea was that at this meeting, the world's largest oil producers would reach a deal that would set a global oil output freeze in motion. Unfortunately, however, that wasn't what happened. In fact, as I predicted, nothing really happened. The reality is that the world's largest oil producers aren't quite friends. So, putting these people in a room together and expecting them to come out with an agreement led to slim to no chances of an agreement being worked out.

Because the world was excited about the idea that a possible supply cut was on the horizons, we've seen strong gains in the value of oil recently. However, as it became clear that there were little chances of a deal actually being worked out, and after the announcement that a deal was not made, oil sank. At the moment, oil is down nearly 7% as a result of the missed opportunity.

Why This Has Anything To Do With Gold

As most of you know, gold is a safe haven investment. This means that when market conditions are poor, we can expect for investors to look to gold as a way to keep their money safe. This ultimately increases demand and causes the price of the precious metal to head upward. So, where does oil come in all of this?

The truth is that oil is an incredibly important commodity for the market. After all, the black gold in a way dictates what we can expect to see in the energy sector. Not to mention, the energy sector has a way of dragging the entire market along with it. As a result, investors know that nothing happened at the big oil meeting, which is sending the value of oil down. From there, the energy sector is likely to feel the pain, dragging the market down with it. As a result, these investors are selling their stocks and buying gold in order to keep their money safe, sending gold's value on a strong upward trend.

What We Can Expect To See Moving Forward

If you follow my writing here or elsewhere, you know that I've maintained a relatively bullish opinion on gold for some time now. That opinion has not changed. The reality is that while the US economy seems to be doing well, the global economy is in shambles, and that's pushing investors toward gold. On top of poor global economic conditions, the stock market is becoming a more and more scary place given the incredibly high valuations in the market at the moment. As a result, I'm expecting to see a large-scale market correction in the relatively near future, which will likely scare investors and push them toward gold. Now, with the news surrounding oil, it seems as though the stars are lining up just right in order to give gold the shine that investors have been missing for quite some time. All in all, I'm expecting to see long run gains out of the precious metal. 

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.