Gold Follows Oil’s Lead

Statistics are just as important and useful in finance, as they are in sports. I bring that to your attention, because there is a distinct correlation between oil prices and gold prices. More than 60% of the time, the two commodities appreciate or depreciate together. Increasing tensions between Saudi Arabia and Iran are pressuring both to increase. After more than seventy years of collective leadership, Saudi Crown Prince Mohammed bin Salman (MBS) has become the de facto leader of Saudi Arabia. MBS has expressed hostility toward Iran in the past and this past week’s missile attack by Iran on Saudi Arabia’s main airport has moved the parties closer to outright war.

In an effort to overhaul the country’s economy, MBS is floating the idea of taking Aramco, the state-owned natural gas & petroleum company public. President Trump has rolled out the red carpet for MBS, leading directly to a New York Stock Exchange listing, but this appears to be more of a business decision on the part of MBS than a political decision, so until every opportunity is considered, all bets are off. But due to the size and assets of Aramco, if they were to go public with an initial public offering (IPO), it would undoubtedly qualify as the largest IPO in history.

U.S. gas prices have been on the rise and if Saudi Arabia cuts production again, which they are expected to do, specifically in order to drive prices up while they shop their Aramco IPO between a variety of exchanges, then oil prices will continue to rise and the probability of gold prices increasing will also increase. And regardless of that probability, increased oil prices negatively impact economic growth. Manufacturing businesses may be forced to raise prices and cut back production in order to cover increased oil costs and such pullbacks in manufacturing businesses can slow or stop equity investment, which again adds fuel to the precious metals price fire. Iran may attempt to fill the void and limit Aramco’s potential valuation, as a sign of further aggression, but such increased tensions could also fuel increased precious metals prices, particularly gold.

The political impasse occurring in Germany will add to global tensions and uncertainty. When the Senate returns next week, they will need to expedite tax reform discussions and a failure to complete will cause more than significant consternation, particularly in light of the upcoming debt ceiling increase vote scheduled to occur in December. Don’t get caught without a seat when the music stops! Call the experts at American Bullion to secure your legacy and financial future at (800) GOLD-IRA.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.