Gold: Waning strength compared to Oil and Dollar – BNY

Gold’s Recent Performance Amid Market Shifts

According to Bob Savage, Head of Markets Macro Strategy at BNY, gold ended its five-week streak of gains, dropping 3% as the US dollar strengthened and oil prices climbed. While investors continue to consider gold as a substitute for traditional currencies, enthusiasm has waned. The report suggests that for the historical oil–gold correlation to return, either oil prices must rise further or gold prices need to decline.

Reevaluating Gold’s Safe-Haven Status

Over the past week, investors have avoided bonds due to concerns that an energy shock could delay interest rate reductions in the US and UK, while increasing the likelihood of rate hikes in the EU. Gold’s 3% weekly loss marks its first decline in over a month, coinciding with a 1.7% jump in the US dollar—the largest in four years. Oil surged more than 20%, and natural gas soared over 50%, fueling global worries about stagflation.

BNY’s risk sentiment index, iFlow Mood, peaked two weeks before the conflict (at the 99th percentile) but has since returned to a neutral level (64th percentile). Although gold remains a popular alternative to fiat currencies, investor interest and momentum have noticeably diminished.

Market forces are expected to push the oil-to-gold relationship back toward its historical trend, implying either a significant increase in oil prices or a further drop in gold. Many investors are treating the current conflict as background noise, focusing instead on broader economic developments.

Oil continues to influence inflation expectations, interest rates, and currency movements. The dollar’s recent strength mirrors patterns seen during the 2022 energy crisis. However, gold’s declining momentum and neutral risk sentiment indicate that investors are not fully prepared for a sustained period of stagflation.

This article was produced with assistance from an AI tool and subsequently reviewed by an editor.