Analysts: Weaker oil prices on Iran deal won't impact gold

Some commodity analysts agree that weaker oil prices, pressured by a potential nuclear agreement between Iran and six major world powers, will not have much of an impact on gold prices in the near-term. 

Before recovering on Wednesday, oil prices fell sharply on a back of a historic deal reached between Iran and the United States, Britain, France, Russia and China directed to limiting Tehran’s nuclear ambitions for the next 10 years, and also lift economic sanctions imposed on the country.

The drop in oil had little impact on gold, which has traded in a fairly narrow range Tuesday, bouncing below resistance at $1,160 and support at $1,150 an ounce.

Most analysts are not expecting to see gold prices fall on the back of weaker oil prices.

Commodity analyst at Commerzbank Eugen Weinberg said oil and gold are reacting to very different scenarios.

He suggested that oil is expected to remain fragile as market will continue to be oversupplied, which wouldn’t have any impact on gold prices. Meanwhile, the yellow metal is more focused on when the Federal Reserve is expected to raise interest rates.

Analysts at USB said in a Tuesday note that although gold has been positively correlated with oil, the current level remains near zero.

Despite the recent fall across the commodities sector, "gold's 20-day and 60-day rolling correlations with oil are currently near the lower end of the range suggests that any further pressure on oil is likely to have limited impact on gold prices,” they said.

Bernard Dahdah, precious metals analyst at Natixis, does not support this view. He agrees that oil is reacting to supply-side market dynamics. But he also notes that the Iran accord could weaken gold prices as it removes ongoing geopolitical tensions, reducing the need for gold as a safe-haven asset.

Last week showed how noticeable the link between oil and gold is, when weakness in copper and crude put under pressure the entire precious metals complex.

However other analysts consider that there are differences between Tuesday’s weakness and last week’s declines.

George Gero, precious-metals strategist with RBC Capital Markets Global Futures noted that “Last week, oil prices fell because investors were worried about weaker growth in China and the selloff in gold was margin related.”

“Investors and managers needed to sell their liquid investments to raise much needed cash.”

Richard Baker, editor of Eureka Miner's Market Report, said Friday he expects gold to continue to trade near $1,150 an ounce on weaker oil prices.

“Importantly, gold is now positively correlated with both key commodities (on both a 1-month & 3-month basis) so it is reasonable to expect gold to follow their price direction but with less volatility,” he said.

“With the Goldman Sachs Commodity Index (GSCI) headed toward last March's low, I expect more downside to copper, oil and their compatriot gold next week.”