Oil-Gold Tie Breaks 1st Time in 5 Years as Economy Grows

A five-year-long link between crude oil and gold has come apart as the economic recovery boosts energy consumption and lowers the metal’s appeal as a haven, encouraging investors to buy oil and sell gold.

The 120-day correlation between West Texas Intermediate crude and gold futures slipped into negative territory this year for the first time since July 2009. The relationship tightened, though remained negative, last week as military tension in Iraq boosted prices for both commodities.

Crude and gold moved in tandem for a half decade as investors sought to diversify into commodities from equities and bonds. U.S. economic growth is boosting expectations that fuel demand will rise, while gold is losing its allure as an alternative to the dollar, with the Federal Reserve signaling tighter monetary policy. Gold will be the worst-performing commodity in the next 12 months, forecast 71 percent of investors polled by Credit Suisse in May, while 49 percent said crude has the best outlook.

Oil Rising

WTI crude rose as much as 0.4 percent in 18 June electronic trading after closing at $106.36 a barrel on 17 June on the New York Mercantile Exchange. The grade has risen 4.8 percent this quarter. Brent, the European benchmark, was little changed after rising to $113.45 on the London-based ICE Futures Europe exchange, for a 5 percent gain in the second quarter. Gold futures for August delivery fell as much as 0.4 percent on 18 June trading after closing at $1,272 an ounce on 17 June on the Comex in New York, down 1.3 percent this quarter.

U.S. gross domestic product will increase 2.2 percent this year and 3 percent in 2015, following a 1.9 percent gain in 2013. The economy plunged into the worst recession in the post-World War II era in 2009. The Fed reduced its monthly asset buying to $45 billion in April, the fourth straight cut of $10 billion. The central bank, which ends a two-day meeting on 18 June, may raise its benchmark interest rate faster than investors expect, according to a majority of economists in a June 12-16 survey.

Iraq Tension

Crude and gold gained after Islamic State in Iraq and the Levant captured Mosul, Iraq’s biggest northern city, last week and advanced toward Baghdad, pushing OPEC’s second-largest oil producer to the brink of civil war.

The International Energy Agency raised forecasts for global oil demand in 2014 by 65,000 barrels a day, following stronger-than-expected growth in the first quarter in Japan, the U.S., Germany and the U.K. World fuel consumption will increase by 1.3 million barrels a day, or 1.4 percent, this year to average a record 92.8 million barrels day, the Paris-based adviser to oil-consuming nations said in a monthly report on May 15.