Correlation between Gold, Oil and Interest Rates Being Challenged

It’s long been held that gold and silver move in tandem, and have a long-term relationship. But recent events are showing a strain in this relationship.

Renewed fears in the Eurozone and plunging oil prices since the beginning of the year have sent investors searching for safe haven assets like gold and silver. But with a turnaround in oil and Treasury securities in the last few days, this safe haven demand has abated somewhat.

From Gold-Eagle:

It’s significant that gold was down this week at the same time that U.S. Treasuries were sharply lower. In the past, rising bond prices (and falling yields) were bearish for gold and silver since a bullish bond market was viewed as a sign that investors were becoming risk-averse by chasing the speculative rally in bonds.

Analysts from BoA/Merrill contend that different factors are driving gold prices, specifically movements in interest rates and currencies. According to analyst Michael Widmer “…a unique combination of factors is again making gold attractive in investor portfolios: negative nominal interest rates, a closing volatility gap to other asset classes, and improving weekly returns.”

Although there are signs this long-term correlation is ending, we’ll have a better idea in the coming months if this is a temporary transition phase in the market, or the beginnings of a new, long-term inverse relationship between gold, oil and bonds.