Oil price jump highlights gold’s lower volatility



Those familiar with our work will already know that we are unashamedly fans of gold. And for a very good reason we’d argue. While it is without doubt our focus, it would be wrong to say that we analyse it in a vacuum. In our recently published report Gold: the most effective commodity investment, we looked at how gold is under-represented in the commodity indices investors often use to gain exposure. This can have unintended consequences on portfolio performance, especially when other commodities – such as oil – can have significantly different characteristics than gold.

The drone attack in Saudi Arabia on 14th September highlighted this. The event resulted in approximately 5% of global oil supply being taken offline. In response, global oil prices initially spiked by 20% before partially falling back. A major reason for this reaction is that the global supply of oil is concentrated. Looking at data from the US Energy Information Administration, the top 10 oil producing nations accounted for 70% of global oil production in 2018. (Saudi Arabia – the world’s second largest producer – accounted for 12%.) What’s more, half of the list are situated in the Middle East region.

Global gold production, on the other hand, is more geographically diverse. The top 10 producing nations only account for 60% of the global total, with no single producer accounting for more than 12%. And the concentration risk is far lower as gold is mined on every continent except Antarctica. This diversity in mine production helps to create a more stable supply chain, less susceptible to supply shocks. This, in turn, helps to reduce price volatility. Gold has a significantly lower annualised volatility (16%) than oil (32%), and many other key commodities. It’s also worth noting the lack of a consistent relationship between gold and oil prices.1


Questions surrounding this event and rising tension in the Middle East, will only add to the fog of uncertainty, highlighting to investors the need for risk management to protect their wealth. And the rise in uncertainty is likely to benefit gold. In recent editions of Gold Demand Trends, we have written at length of the likelihood that geopolitical uncertainty (in addition to low/negative interest rates and dovish monetary policy commentary by central banks) will drive investment demand higher.




Investors also tend to access the oil market via the derivatives which will increase counterparty risk.

Copyright and other rights

© 2019 World Gold Council. All rights reserved. World Gold Council and the Circle device are trademarks of the World Gold Council or its affiliates.

All references to LBMA Gold Price are used with the permission of ICE Benchmark Administration Limited and have been provided for informational purposes only. ICE Benchmark Administration Limited accepts no liability or responsibility for the accuracy of the prices or the underlying product to which the prices may be referenced. Other third-party content, including Metals Focus, is the intellectual property of the respective third party and all rights are reserved to them. World Gold Council is affiliated with Metals Focus. 

Reproduction or redistribution of any of this information is expressly prohibited without the prior written consent of World Gold Council or the appropriate copyright owners, except as specifically provided below.

The use of the statistics in this information is permitted for the purposes of review and commentary (including media commentary) in line with fair industry practice, subject to the following two pre-conditions: (i) only limited extracts of data or analysis be used; and (ii) any and all use of these statistics is accompanied by a citation to World Gold Council and, where appropriate,  to Metals Focus, Refinitiv GFMS or other identified third-party source, as  their source. 

World Gold Council does not guarantee the accuracy or completeness of any information. World Gold Council does not accept responsibility for any losses or damages arising directly or indirectly from the use of this information.

This information is not a recommendation or an offer for the purchase or sale of gold, any gold-related products or services or any other products, services, securities or financial instruments (collectively, “Services”). Investors should discuss their individual circumstances with their appropriate investment professionals before making any decision regarding any Services or investments.

This information contains forward-looking statements, such as statements which use the words “believes”, “expects”, “may”, or “suggests”, or similar terminology, which are based on current expectations and are subject to change. Forward-looking statements involve a number of risks and uncertainties. There can be no assurance that any forward-looking statements will be achieved. We assume no responsibility for updating any forward-looking statements.