uploads/2016/01/Gold-and-Oil-Prices-2016-01-221.jpg

12-Year Lows for Oil Lifted Up Gold

By

Updated

Oil and gold

Oil prices were severely hurt by the lifting of Iranian sanctions. Oil closed at its 12-year low level of $26.5 per barrel on Wednesday, January 20. The rock-bottom oil prices sent jitters to the equity markets and caused investors to seek safety. The investors jumped into haven assets like gold and US Treasuries.

Gold prices have been swinging between gains and losses amid the current ups and downs in oil and stock markets. The US dollar is also important when comparing the prices of gold with oil. Both these assets are dollar-denominated and may respond similarly to a gain in the US dollar, as a strong dollar makes the assets unattractive for the investors of other countries. The rise in the dollar is supporting the current massive oil rout, but gold is rising mainly due to haven demands.

Article continues below advertisement

Miners get a breather

The falling oil prices can certainly be beneficial for mining-based companies that use oil extensively for the exploration process. A drop in oil prices certainly leads to a drop in production costs. Gold on the other hand, which is the core product that gold companies sell, is rising. A rise in gold prices has resulted in a share price rise for many miners. The top gainers during the past five trading days include Randgold Resources (GOLD), Barrick Gold (ABX), AngloGold Ashanti (AU), and Sibanye Gold (SBGL). These four have gained 5.5%, 3.6%, 2.4%, and 17.3%, respectively. Together the four companies make up 18.5% of the VanEck Vectors Gold Miners ETF (GDX).

Advertisement

More From Market Realist