Oil and gold relationship

First, Oil influences gold

First, one possible argument goes that a high oil price is bad for the economy, dampening growth and dragging
down share prices. As a consequence, investors look for alternative assets, such gold. Thus, the oil price
indirectly affects the price for gold. Such a scenario could be observed end of the 1970s when the oil cartel
reduced the output of oil, so that its price surged. This sent shockwaves through the U.S. and global economy
and resulted in the long recession of the 1970s.

Second, oil affects gold mines

Another line of thinking sees an inverse causation between the oil price and share prices of gold mining
companies. Expensive oil makes gold extraction more expensive and therefore minimizes the profit margin of
gold mines. This is because a big portion of mine expenses are related to energy, and the oil price.

Third, inflation impacts gold and oil

Third, both, gold and oil are traded in the U.S. dollar. Therefore, its price hinges on the strength of this currency.
What is a sign of the strength (or weakness) of a currency? Its inflation rate. It can be argued that the prices of
both commodities have a similar trend is not because one influences the other, but because their price is driven
by a common factor. And this is the inflation rate.
This third theory is a reminder that correlation, meaning a similar pattern between two variables, does not
necessarily imply causation. One explanation might be indeed causation: The oil price influences directly the gold
rate. Another possibility is an indirect relationship, with another factor sitting in the middle. Or, as the third
argument goes, a common factor that influences the rates of both commodities. It can even become more
complicated, if the gold oil relationship is not stable over time. Say, in the 1970s the oil price might have had a
much bigger influence on gold than it is now.