Gold or Oil – Which One Should I Invest In?

Financial crises, always bring commodities such as oil and gold back into focus; and the COVID 19 pandemic is no different. The resulting monetary easing (low-interest rates) and the uncertainty surrounding financial assets and the global economy have increased investor interest in commodities. So, if you are also looking to invest in commodities and are confused between oil and gold then we are here to help.

Gold

During 2020 gold prices witnessed an increase of 24%, starting from $ 1,529/oz. and ending at $1,898/oz. In August, when the pandemic was at its worst (at least from an investor’s perspective) gold prices reached a high of $2,063/oz. So, apart from its shine, what makes gold so attractive?

Despite the advent of fiat currencies, gold has kept its attractiveness primarily due to its use as a store of value and a hedge against inflation and economic uncertainty. So it is no surprise that when there are economic or political risks, investors divest financial assets such as stocks and flock towards gold.

Secondly, gold generally has an inverse relationship with interest rates. For example, when interest rates are low, investors buy gold in hopes of a better return than the prevalent low T-Bill yields.

Oil

Although oil is known as “black gold” Investing in it is not as simple. Oil prices are primarily affected by supply and demand but there a lot of factors behind them including various geopolitical dynamics. In order to buy oil, you need to invest in futures, and the 2 most popular are WTI (West Texas Intermediate) crude and Brent Crude.

Trading oil futures have a lot of aspects that are beyond the scope of this article.

The price of WTI was at $62/barrel on 1st Jan 2020 and $48/barrel at the end of the year. However, there was considerable fluctuation throughout the year and oil prices were generally low due to lower demand during the pandemic.

Gold versus Oil

We think that gold is a better investment in comparison to oil. Mainly because gold is safer while oil is risky and oil prices can fall due to geopolitical pressures, for example in the case of a Biden-Iran deal, oil supply will increase.

Secondly, the world as a whole is moving away from fossil fuels in favor of greener and carbon-free technologies; and we believe there will be headwinds for oil prices in the future.

If you are looking to invest, you can find a commodities broker that’s right for you at Forex Trading Hub.