FX.co ★ What is needed to support gold?

In order to evoke inflationary concerns and support gold, oil prices must rise even higher, as stated by Western analysts.

The further reduction of oil production in Russia and Saudi Arabia has given a boost to oil prices, which, in turn, has supported the gold market. However, according to many market analysts, before inflationary concerns give a new impetus to the precious metal, oil prices need to be even higher.

After Saudi Arabia's announcement that they would cut production by an additional 1 million barrels per day, West Texas Intermediate crude oil prices rose by 3%. Following Saudi Arabia's announcement, Russia also announced a cut in production by 500,000 barrels per day.

Meanwhile, gold prices continue to trade below the resistance level of $1,930 per ounce.

According to Ricardo Evangelista, senior analyst at ActivTrades, it is unlikely that oil prices will rise as the world continues to face recession threats that impact oil demand. Additionally, worsening Chinese economic prospects and the persisting aggressiveness of the Fed and ECB will limit the rise in oil prices as demand expectations continue to decline.

Ole Hansen, head of commodity strategy at Saxo Bank, said gold still negatively correlates with bond yields. The yield on 10-year bonds is trading at a 4-month high of 3.9%.

Over the past month, the correlation between gold and real yields has been restored, and if it is maintained, and if higher oil prices lead to speculation about strong inflation, it should support gold. However, Hansen added that it is unlikely that oil will break out of its two-month trading range in the near future.

On the other hand, according to Alex Kuptsikevich, senior market analyst at FxPro, production cuts will provide significant support for oil. At the same time, oil prices are a quarter lower than a year ago, creating deflationary pressure. Additionally, with the increase in bond yields due to the aggressive monetary policy of the Federal Reserve, gold faces some obstacles.

However, such conditions can also be favorable for gold, as two more rate hikes increase the probability of problems in the banking and consumer sectors. Signs of trouble in banks' quarterly earnings reports can quickly change the situation with gold, as happened in March.