Oil and Gold Decouple As Iraq Crisis Continues

A five-year-long link between crude oil and gold has come apart as the economic recovery boosts energy consumption and lowers the metal’s appeal as a haven, encouraging investors to buy oil and sell gold.

The 120-day correlation between West Texas Intermediate crude and gold futures slipped into negative territory this year for the first time since July 2009, according to data compiled by Bloomberg. The relationship tightened, though remained negative, last week as military tension in Iraq boosted prices for both commodities.

Crude and gold moved in tandem for a half decade as investors sought to diversify into commodities from equities and bonds. U.S. economic growth is boosting expectations that fuel demand will rise, while gold is losing its allure as an alternative to the dollar, with the Federal Reserve signaling tighter monetary policy. Gold will be the worst-performing commodity in the next 12 months, forecast 71 percent of investors polled by Credit Suisse in May, while 49 percent said crude has the best outlook.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza