How Geopolitical Events Affect Gold And Oil (Television Interview)

January 19, 2020

Karl Eggerss was interviewed on CBS to discuss recent geopolitical events involving Iran and their impact on gold and oil.

Sharon Ko:                         The US and Iran conflict drove oil and gold prices up. In Your Money Smart this morning we’re talking about how the fluctuations affect you and your investments.

Sharon Ko:                         Can you explain how international events affect the two?

Karl Eggerss:                      Yeah, historically whenever there’s an issue we’ll call it like that, any kind of geopolitical risk, especially something that happens very quickly overnight, you typically do see oil and gold go up. Oil primarily because of where it’s taking place. There’s a lot of supply over there, and if that gets choked off, oil prices could rise. And so we saw an initial spike of oil prices, which obviously leads to gasoline prices going up. And that’s really how most of our viewers are affected is by gasoline prices going up.

Karl Eggerss:                      But when things calm down, it reversed, and the reason it reversed so quickly is because of the fact that the United States is pretty energy independent compared to where it was even 10 years ago. And so there’s a lot of oil in the world. With technology we obviously know about fracking right here in our backyard, and so because of that, oil prices don’t spike as much as they used to on these kind of events. In the past we may have seen an 8 or 10% jump in oil price or gasoline prices. We didn’t really see that this time and it’s because we have a lot of oil, which is a good thing.

Karl Eggerss:                      In terms of gold, basically when the US dollar is weak, gold goes up. And we’ve seen that at times, when other assets around the world are going up, sometimes people tend to flock to gold as kind of a safe haven. But historically gold has actually been one of the worst asset classes compared to stocks, bonds, real estate. It’s been much, much worse. So while temporarily it sometimes can go up, and it can go up for a few years even, over the real long term, it hasn’t performed as well as stocks and bonds.

Sharon Ko:                         So, when would be a good time to jump in and invest in gold?

Karl Eggerss:                      You know, I don’t think it’s a bad time to ever have gold as part of a portfolio, because it does move differently. And really the reason people buy different things in their portfolio is to have something going up while something’s going down. It kind of mitigates some of the risk. And that’s what gold tends to do, it tends to move differently than stocks and bonds, and when you put it together, it gives you a little smoother ride. So, a small portion is fine. Some people like to buy physical gold, but then you have the problem of storing it and you have to go sell it and try to find somebody to buy it from you. But nowadays you can trade on the New York Stock Exchange. A particular [inaudible 00:02:30] that actually tracks the price of gold pretty easily just like a stock would.

Sharon Ko:                         Thank you to Karl Eggerss with Covenant for that interview.