Gold and Oil (black gold) price direction

[SilverGoldSaver]

Hi All, I want to get your thoughts on the price direction of Gold relative to the price of Oil (or black gold 😆).

WTI futures went negative today (approximately negative $40) which I think is a first, and logically doesn't make much sense to me. 

My question is - do you think this will make the price of Gold go down, because the input costs (energy) is now cheaper, or do you think this will make the price of Gold go up, because of the fear of recession, war, etc.

Or is there no correlation?

Keep politics to a minimum please if at all possible. Just want to get your thoughts on the economics. Thank you!

[Stuntman]

In my uneducated opinion, I would not be expecting a correlation between these two commodities - or if so, it would be minimal at best.

[Martlet]

If the question is will the price drop because of cheaper energy, not really, the costs are negligible.  However, if we recognise the oil price is a indicator of lower demand, then it is not unreasonable to suppose if the economy is contracting then gold may go down. Certainly if we face price deflation that would go against the gold price.  

[Bumble]

Cheap oil is indeed good for gold miners, because fuel makes up about 20% of their costs. But that is unlikely to feed through into cheaper gold, because the supply of mined gold is quite small compared with the total amount of gold that is owned and traded.

If oil continues to be very cheap, it will be bad news for the shale industry, the Saudis, Russia and Iran, to name a few. Russia and the Saudis can probably survive for a few years before going broke, but the Saudis may feel compelled to sell more assets, such as shares in Aramco, and the Russians if they are desperate enough may sell some of their gold, which could push the price down.

A global recession theoretically depresses commodity prices, but recent experience indicates that governments and central banks are willing to create and spend unlimited amounts of currency to avoid the effects of recession. This is positive for gold because it remains a safe haven asset. However, newly created currency will also flow into stocks, so gold will have to compete for investment.

[KDave]

The costs of oil vs price of gold mattered in 2015 when gold miners were running close to their all in sustaining costs, and thus supply of gold was threatened, but not the other way around;

Cheaper oil vs higher gold prices does not appear to give any useful indication, unless I am missing something. 

(beyond as bumble points out, the costs associated with the miners. For them, it is another positive towards an investment case, especially as they have not yet followed gold higher). 

The gold to oil ratio was a useful mechanism for determining when either was expensive or cheap relative to each other, but in recent years (2015/16?) the ratio lost its utility somewhat and was declared temporarily suspended as a useful measure by many people I followed at the time. 

I believe this happened due to a number of fundamental changes in the oil market, thanks to the advent of fracking, the energy independence of the US and perhaps in turn had something to do with a change in the status or requirement (given energy Independence) of the petrodollar, which was the historical link between gold and oil - the dollar being kept strong in gold, in order to buy oil. I think fracking was for oil what the discovery of the new world was for gold, a major game changer.

[SilverGoldSaver]

Very insightful comments, thank you all! 👍