Coronavirus sets gold against oil

Coronavirus sets gold against oil

As the dollar surged to multi-year highs, gold prices dropped. 

The worth of gold has been very high this week, but this is not a surprise. Investors viewed the metal as a haven. 

Gold’s value versus copper has climbed to its highest in more than a decade. The metal’s relative value to silver is the highest on record. Such a rapid change in the cost of these metals proves the scale of the economic damage. Investors fear the ratios Coronavirus is causing, putting markets into a deep recession. 

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On the other hand, the price of black gold is lower than $30. It is the lowest rate of the commodity since the Iraqi invaded Kuwait in 1991. 

In 2019 experts hoped the demand for oil would increase next year. Unfortunately, the pandemic that has spread around the world is sharply affecting the demand. Gavin Thompson, a wise chairman for energy at Wood Mackenzie, said that 2020 had hit the world like a fist.


What happens to the price of oil?

Three calamities have buffeted the oil market.

On the one hand, Relentlessly expanding the US shale industry and endless oil wells of the Saudis caused excess in the oil supply. 

On the other part, even after the assassination of Qassem Soleimani, followed by the disagreement between Iran and Us, oil prices were steady. However, the Coronavirus outbreak, which has caused travel restrictions and global quarantine, has severely worsened the demand for oil.

Ultimately, Saudi’s decision to break its recent strategic oil partnership with Russia and maximize production levels ended up in the biggest slide in oil prices since 1991.


According to ARAMCO’s report, even though Saudi’snew policy is very unpopular with the most oil-exporting countries, it gives Saudi Arabia a long-term advantage. Collapsing prices could drastically decrease the revenues of oil-producing companies and American shale producers. In turn, Saudis can cope and sustain meager prices of oil for a long time. After all, they are producing the cheapest oil in the world at $8.98 per barrel. In comparison, US shale costs $23.35 a barrel, while Russian production’s value is $19.21. Thus, the price war will affect the US and Russia more than Saudi Arabia.


Gold prices could drop even more

Eventually, the gold seems to be the most actively traded precious metal. It’s the world’s safest investment right now. Since the US dollar is one of the critical determinants that influence gold prices, these two have an inverse relationship. When the US dollar weakens, gold prices climb up and vice versa. It’s because gold is priced in dollars. A weaker dollar makes the metal price cheaper and attracts more demand for it. 

Analysts believe gold prices could fall even more. Coronavirus-led lockdowns are threatening to overshadow stimulus measures from global central banks. 

The only positive thing is that Coronavirus is less deadly than the SARS. The fatality rate of COVID-19 is 3.3%, compared to 9.6% for SARS. 

However, the highest economic costs of pandemic come not from the death rate, but from the panic it causes.