If you’re looking for yet another reason why you should invest in gold, the recent attack on Saudi Arabia last month caused a good chunk of the world’s supply to go offline, and everyone felt it. However, when compared to the value of gold, it remained virtually unchanged. This low volatility of gold makes it one of the best commodities to invest in, especially if you are looking for something to help keep your assets safe.
Once the dust settled, oil markets had consolidated gains that are almost 10%, there is also a possibility of a deeper correction as UAR said that their oil production could be restored within a week after the attacks. In addition, President Trump allowed the country to tap into the country’s petroleum reserves just in case. This meant that the gas prices in the US was not really affected much by the attacks, but the same could not be said for the rest of the world.
Also, the Chinese industrial production growth dropped from 5.2% as expected by analysts, to just 4.4% y-o-y by August. In addition, retail sales went down to 7.5% within the same period compared to 7.9% as expected by analysts, and the 7.6% reached the month before. Thanks to the slower sales and production in China, worries about a weaker global demand were kept at bay, despite the numerous supply shortages in the oil markets.
Looking back at the supply side, the drone attacks further increased the tension between Iran and the USA, mainly because the US accused Iran of the Aramco drone strikes, to which Iran vehemently refused. Regardless of who was at fault for the attacks, the accusations that the US made only made the already strained diplomatic relations between the two countries even more volatile. This is why oil prices might settle down at a higher price per barrel compared to the prices before the attacks.
On the other hand, these attacks could not have come at a worse time for Aramco, as it happened just before the company was about to go public; thanks to the attacks, Aramco’s IPO valuation is steadily getting lower.
The reason why oil commodities are so volatile is because their production is mostly concentrated in one area of the world, in the Middle East. Compared that to gold, where no one country can produce more than 12% of the world’s supply. So even if one gold producing country gets hit by calamities, the price of gold would hardly go up, before it goes down and stabilizes once again. This is also the same with other tradeable precious metals, like silver (which is also not that volatile, but has a high demand), palladium, and others.
Compared to oil, the diversity in mine production means gold has a steadier, more reliable supply chain than oil, and also making it less susceptible to supply shock. Gold has a much lower annualized volatility (16%) compared to oil’s 32% volatility. So if you are looking into diversifying your portfolio, and you want something that can actually hold its value during SHTF moments, there is nothing that