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

In today’s dynamic market landscape, institutional traders are looking to capitalize on shifts and movements, not in isolation with specific stocks, but through correlations and spreads between various assets or markets. This strategy aligns seamlessly with a global macro approach, considering diverse markets and assets when forming opinions or views.

Currently, as U.S. treasury bonds see a rally following a dip in the U.S. dollar, a similar pattern may emerge between the prices of gold and oil. In this scenario, the basic materials sector, especially mining stocks, and the energy sector could experience significant price action in the forthcoming months.

By observing the market trends between these economic areas, such as the SPDR Metals & Mining ETF alongside the Energy Select Sector SPDR Fund, it becomes apparent that the market might be starting to show a preference for energy over mining. Over the past month alone, energy has outperformed mining by about 10%, raising the question of whether gold can sustain its rally or if a pullback is imminent.

Despite concerns, there are numerous reasons to believe that gold can continue its upward trajectory, including concerns over inflation and a weakening dollar. However, recent gains have potentially already factored in some of these aspects. Investors wary of gold’s outlook may find that a global macro approach could mitigate potential pullback risks.

As U.S. and China manufacturing PMI indexes begin shifting into expansion mode this quarter, investors may want to evaluate why Warren Buffett remains optimistic about oil, particularly through his ongoing acquisition of Occidental Petroleum. A resurgence in global manufacturing activity is likely to boost oil demand, thereby benefiting stocks further up the value chain, such as Transocean and the United States Oil Fund, which may serve as hedges for portfolios still holding oil positions.

Moreover, with both gold and oil being correlated commodities, typically showing up to a 50% average correlation, today’s negative correlation presents an opportunity to capitalize while safeguarding a gold position. The notable difference in performance between gold and oil currently presents a compelling opportunity for investors.

Wall Street analysts are endorsing this theme, with a price target of $5.42 on Transocean’s shares, suggesting up to an 82% upside from current trading levels. The underlying optimism for oil and drillers is further validated by significant investments, like those made by The Vanguard Group, which has recently increased its holdings in Transocean stock.

On the gold mining front, Barrick Gold Corp. appears to be a standout option, having not fully capitalized on the benefits of gold’s rally. Corporate insiders express a bullish sentiment on this stock, highlighted by recent buybacks indicating perceived value and unrealized potential.

Additionally, Wall Street analysts are spotlighting Barrick Gold as a potential beneficiary should gold prices retract from their heights. Analysts from Raymond James notably assign it an Outperform rating and a valuation of $24 per share, estimating a potential 30% upside.

Furthermore, this optimistic outlook is shared by institutional investors such as Capital International Investors, the largest stakeholder in Barrick Gold. As of February 2025, they have significantly increased their investment in the company.

This scenario underscores the promising risk-to-reward profile Barrick Gold presents, especially if gold prices experience a pullback, bridging the performance gap with oil.