Wednesday, August 19, 2009

Relationship between Gold Price and Oil Price

Oil is important inputs for production, when oil price changes, the entire economic world is affected, directly affecting the stability of many countries. This explains why the countries who export oil, including those whose economies are small, has a voice on the world economy forum.

Because oil is so important, many countries and many organizations invest in oil through the future options. When economic development is stable, investors increase investment in oil and gold to protect their assets. In this aspect, we can say, oil and gold tend to to together.

However, unlike gold, oil's role as the industrial commodity are very large, larger than the role of investment commodity. In the current deflationary time, demand for oil as a commodity (fuel) is falling rapidly caused by the decreased production. Meanwhile, oil producing countries still have to continue to produce, because their revenues depend heavily on oil. This causes the price of oil decreases.

In summary, oil and gold prices tend to change together. But when economic degradation are serious (as now), the demand for oil as input for production decrease rapidly, the price of oil can separate from gold price.

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