Investment: The price of gold now depends on the price of oil

Caution is back on the stock markets. Concerns about the AI ​​trade caused investors to sell primarily tech stocks before the weekend. Instead, US government bonds were sought as a safe alternative. The yield on ten-year Treasuries fell below the five percent mark on Thursday and, according to the Bloomberg news agency, fell more sharply than in one day in two years.

Gold, which is actually considered a so-called safe haven, was unable to benefit from the change in sentiment. Instead, the price of the precious metal even briefly fell below the $4,000 per troy ounce mark. This means that the gold correction continues. Two reasons currently explain the price movement.

In recent months, rising interest rate expectations and a stronger dollar have depressed the price of gold. The precious metal itself does not generate any interest and has therefore become relatively less attractive. Since its peak at the end of January, gold has lost 28 percent of its value.

Now the precious metal no longer even benefits from the search for security. On the one hand, this is probably because investors sold gold because of the losses on the stock market, as Commerzbank analyst Carsten Fritsch suspects. “Forced sales probably triggered the price slide because investors had to compensate for losses on shares or meet security requirements (margin calls),” writes Fritsch in a recent analysis.

With so-called margin calls, brokers require additional collateral for credit-financed purchases when prices fall. In such cases, investors may have to sell other asset classes in order to raise fresh money. Christoph Müller, analyst at DZ-Bank, also points out such a connection: “Continued increases in crude oil prices and a global sell-off in tech and AI-driven stocks have caused investors to liquidate their gold positions in order to cushion the price losses they suffered in risky assets,” writes Müller.

On the other hand, according to Bank of America (BofA), the development of the gold price currently depends heavily on the price of oil. A rise in oil prices is “the biggest near-term risk” for gold, according to an analysis published in late September.

Since late August, gold prices and oil prices have tended to move in opposite directions, according to data from Bank of America. Rising oil prices are driving inflation and putting pressure on central banks to raise key interest rates. For the US Federal Reserve, interest rate expectations fell at the end of the week. Nevertheless, almost three interest rate steps are still priced in on the futures markets for the next twelve months.

Since October alone, the price for a barrel of Brent crude oil has risen by ten percent to currently $114. If the price rises to $150 amid ongoing tensions in the Middle East, the price of gold could fall to an average of $3,500 next year, according to BofA's forecast. However, analysts emphasize that this is not the base scenario.

This shows that what matters for gold now is the price of oil. Conversely, an easing of the situation in the Middle East could also support the price of the precious metal. According to Commerzbank, a correction of the Fed's interest rate expectations is likely to "clear the way for higher gold prices."