Gold’s price surpassed $2,700 per ounce in October 2024, drawing renewed interest worldwide. While many people are looking at gold right now, some are also considering oil as an alternative investment option. Both gold and oil have shown strong performance over the years, but they work differently depending on what’s happening in the economy.

We spoke with three industry experts to understand these differences. Their insights illustrate how gold and oil perform during varying market conditions and what makes their prices go up or down. This information can help you decide which option might be better for your goals — whether you’re a beginner or an experienced investor.

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Gold vs. oil: Which commodity offers better returns?

“Oil generally offers stronger return potential, [but] it’s historically more volatile than gold,” explains Kelly Ann Winget, CEO of Alternative Wealth Partners, a Dallas-based private equity firm. She notes that while gold is a long-term store of value, oil can hold value and generate income through specific investment vehicles.

Timing affects returns from the two commodities, according to Jay Young, founder of King Operating Corporation, a Texas-based oil and gas operating company. Oil prices rise during economic growth periods (higher energy demand), while gold becomes more valuable during tough times.

The period from 2020 to 2024 shows this pattern clearly. Oil prices rose with economic recovery and growth, while gold gained value during times of uncertainty.

When it would make sense to invest in gold

Gold investing makes the most sense if your main goal is to get stability and protection against economic turmoil. “[It’s] easier to gain direct exposure to than other commodities,” notes Adam Ferrari, CEO of Phoenix Capital Group, an oil and gas investment firm in Colorado. This makes it a straightforward choice for newer investors.

The past four years have shown us why many investors choose gold. The U.S. deficit spending, stimulus programs and COVID recovery policies created perfect conditions for gold to serve as a hedge against uncertainty. Gold also tends to perform well when inflation runs high.

But Ferrari points out that gold’s uses are more limited than oil’s. Beyond jewelry and some industrial applications, gold mainly serves to preserve wealth. That’s why it might be better to view gold as insurance for your portfolio (rather than an aggressive growth investment).

Learn how gold could protect your portfolio.

When it would make sense to invest in oil

A strong economy makes oil investments more profitable because people are likely to consume more oil. Young points to the COVID-19 pandemic and how it caused major fluctuations. We saw oil demand go up as industries resumed operations. “[That’s when] investors [started to explore] alternative oil and gas investments to capitalize on recovery trends,” he says.

Current events can create sudden opportunities in oil markets. Geopolitical tensions can oil prices to spike sharply. Supply chain problems can often lead to similar price jumps. This means oil can offer quick profits, but again, timing matters.

Young advises looking at different ways to invest in energy. Options include oil company stocks, energy infrastructure projects and even renewable energy technologies. These choices help spread risk while riding the wave of energy market growth.

How do returns differ between gold and oil during various stages of the economic cycle?

Ferrari emphasizes how oil prices can signal economic shifts. Often, they’ll go down before market downturns and start recovering before other investments. Meanwhile, gold usually performs best later in growth cycles.

It’s worth noting these two investments generate returns in very different ways. Winget mentions that with gold, prices stay relatively stable. That’s why many buy and hold it long-term as a wealth-preservation asset. On the other hand, oil prices can change drastically based on world events and market conditions — making it a more active investment.

The bottom line

Commodities such as gold and oil can diversify your portfolio while providing stability and inflation protection. Based on strong results he’s seen, Ferrari recommends a portfolio mix including 5% to 15% in oil and gold, balanced with a 75% to 80% equity component. Before investing in either commodity, ask your financial advisor how they might fit your goals. They can help you consider factors such as risk tolerance, tax implications and which investment options make the most sense for your situation.