Recent gold and oil movements highlight inconsistent long-term correlation

Last week, in a “flight-to-safety” move following the bombings of US bases in Iraq, gold and oil both rallied sharply in after-hours trading, However, on the heels of the announcement that Iran was “standing down,” oil finished the week dipping 6%, while gold was up nearly 1% in US dollars. And while gold is one of the strongest performing asset classes this year, oil is one of the weakest.

What is driving this divergence?

Gold stands apart from the broader commodities complex because of its unique market dynamics and performance drivers.

Specifically, gold has historically benefited from six key differentiators:

1. better long-term, risk-adjusted returns than other commodities and broad-based commodity indices

2. more effective diversification than other commodities, particularly in market downturns

3. better performance than other commodities in low inflation periods

4. lower volatility than most single commodities and similar volatility to broad-based commodity indices

5. proven store of value as commodity values fell sharply against gold following the end of the gold standard

6. high liquidity

Ultimately, while commodities can be a relevant tactical asset, a strategic gold allocation of 2%-10% can supplement or replace a broad-based commodities investment alone and may offer more widespread benefits and better risk-adjusted returns

Watch this video to learn more about why gold is the most effective commodity investment.