Gold Rally vs. Oil Surge: Where Investors Are Betting Next

Key Points

• Gold bulls should be aware of some market shifts happening right now, as a potential pullback could be in the works for them.
• Oil offers a way to hedge their bets, as statistical and fundamental spreads call for convergence.
• Wall Street analysts and institutional capital agree with this shift through their positioning and ratings today.

When institutional traders look to benefit from the market’s underlying moves and shifts, they don’t do so in isolation to an asset or specific stock but rather in a function of correlations and spreads between various assets or markets. This view rhymes entirely with a global macro strategy in a way where various markets and assets are considered when developing an opinion or a view.

Today, just like United States treasury bonds in the iShares 20+ Year Treasury Bond ETF NASDAQ: TLT has rallied as the United States dollar has sold off, a similar rotation might be about to come in between the price of gold and oil, where the basic materials sector (mining stocks specifically), and the energy sector will see the bulk of the price action in the coming months.

By tracking the price action between the two areas of the economy, like the SPDR Metals & Mining ETF NYSEARCA: XME alongside the Energy Select Sector SPDR Fund NYSEARCA: XLE, investors can clearly see that the market is beginning to gain a preference for one over the other, as energy has outperformed mining by as much as 10% over the past month alone, which is where the question of whether gold can keep rallying or pull back is born.

Gold and Oil: A Historically Strong Correlation

There are still plenty of reasons to believe that gold can keep rallying, such as inflation and the decline of the dollar. However, recent gold rallies might have priced in some of these factors already. If this fear is present amongst the gold bulls, a global macro approach might help them cut some potential pullback risks.

Considering that the United States and China manufacturing PMI indexes have started to swing into expansion readings this quarter, investors should consider some of the reasons Warren Buffett has remained bullish on oil through his continued accumulation of Occidental Petroleum Co. NYSE: OXY.

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It is clear that global manufacturing activity breakouts will bring on added oil demand, helping stocks like Occidental and others higher in the value chain, such as Transocean Ltd. NYSE: RIG or the United States Oil Fund LP NYSEARCA: USO, which might become hedges to portfolios which are still long oil today.

More than that, considering that both gold and oil are correlated commodities, with an average correlation of up to 50%, investors can see that today’s negative correlation (hence the massive gap in performance between gold and oil) creates a fundamental and statistical opportunity to profit while still protecting a gold position.

Wall Street analysts also seem to be behind this theme. They currently have a $5.42 price target on shares of Transocean stock, calling for up to 82% upside from where the stock trades today. Helping reiterate the bull thesis on oil and drillers, the Vanguard Group has also stepped in to back the view up with additional buying.

As of February 2025, the group boosted its holdings in Transocean stock by 1.2%, bringing their net position to a high of $295.4 million, or 9% ownership in the company.

Gold Price Trends Could Drive Barrick Higher

One gold mining stock that may not have fully priced in the upside from gold’s rally is Barrick Gold Corp. NYSE: GOLD, and even its own management recognizes this today. As of the past quarter, the latest round of corporate buybacks included this stock, signaling insiders see it as cheap and filled with upside today.

More than that, Wall Street analysts decided to focus on Barrick Gold as a potential winner in case gold prices pull back from where they have climbed to today. Those from Raymond James specifically have landed on an Outperform rating on Barrick Gold, as well as a $24 per share valuation on it to call for as much upside as 30% upside from where it trades today.

As bullish as this may seem, others on the institutional side were willing to bet on this view as well, such as Capital International Investors, the largest institutional holder of Barrick Gold stock today. As of February 2025, they decided to boost their stake by 136.1% in the company.

After this allocation, the group now holds up to $516 million worth of Barrick Gold stock or 1.9% ownership in the company. This reiterates the fact that this stock still can offer a fantastic risk-to-reward ratio in case gold prices pull back and close the gap to oil.