The Gold Price - Is It a Question of the Dollar or Oil?

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Both the dollar and oil, therefore, are helping to contribute to the increase in the price of gold, while other underlying fundamentals, notably the increasing affluence in the grass roots purchasing regions, are underpinning prices.

...The oil price, of course, is frequently a gauge of geopolitical tension and in the current environment it is hardly surprising to find that gold and oil are moving to some degree in tandem. Between the start of 1983 and the end of 1998 oil effectively traded in a sideways trend between, broadly, $10 and $27 per barrel, with the exception of a spike to a record $41.15 in October 1990 after Iraq invaded Kuwait....

The fact that oil prices were fixed for part of the latter part of the 1980s explains, to some extent, the decoupling between oil and gold but the interesting feature is the low relationship between oil and gold during the period of political tension between Iraq's invasion of Kuwait and the end of the first Gulf War. Oil was clearly in a bull market, while gold prices fell, largely as a result of an increase in the value of the dollar which benefited at the time as the asset of last resort on the back of political considerations...

Both the dollar and oil, therefore, are helping to contribute to the increase in the price of gold, while other underlying fundamentals, notably the increasing affluence in the grass roots purchasing regions, are underpinning prices. The is little sign of any alleviation in current tensions and it is arguable, therefore, that while gold prices are currently running into resistance, there is scope for further upside yet.

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