Surging Oil, Gold Prices an Indicator of Looming Inflation

In the last 12 months, the price of gold has risen by more than 20% while that of oil has increased by 15%. Investors of the precious metal are currently having a good run, with gold severing its ties with interest rates in the United States to trade at new highs.

As of Tuesday this week, U.S. gold futures were trading at $2,356.50 per ounce while the price of spot gold stood at $2,357.4 an ounce. Earlier this month, the precious metal had risen to a near one-month high, its performance being bolstered by lower treasury yields and a weakening dollar.

During that period, data showed that consumer prices in the United States were less than expected for April, which increased chances of the Fed reducing rates of interest. U.S. gold futures for June delivery hit $2,394.90 an ounce while spot gold rose by more than 1% to reach $2,386.60 an ounce.

Meanwhile, the price of oil has been increasing ahead of the upcoming meeting of the Organization of the Petroleum Exporting countries (OPEC) and its Russian allies. This comes at a time when global oil markets are on high alert as tensions in the oil-rich regions of the Middle East continue to worsen.

Airstrikes by the Israeli government on Rafah, a city in southern Gaza, has triggered widespread condemnation globally. This geopolitical situation together with expectations that OPEC’s production cuts will continue and American demand will increase in the summer bolstered the price of Brent crude to a little more than $84 a barrel.

One expert believes that the price increases of these commodities are a sign of imminent inflation. This is backed by a survey by the Federal Reserve, which found that inflation continued to increase as companies grew more cynical about the future amid reducing consumer demand.

The significant increase in the price of gold has primarily been driven by strong demand from central banks, particularly in China, Turkey and India, which have risen to unprecedented levels since 2022. Gold demand from China points to the country’s desire to decrease exposure to the U.S. dollar. Anxiety in the country’s property market has also bolstered demand for gold from retail investors in China, which is further supporting the price.

TD Securities’ head of commodity strategies, Bart Melek, stated that the entity had observed a reduction in yield curve rates and a drop in the dollar index as gold came off a correction and began performing well again. Melek noted that the Fed’s ambiguous monetary policy could keep the precious metal from performing even better during this period, however. This possibility may not be of much concern as gold extractors such as Freeport-McMoRan Inc. (NYSE: FCX) are aware that the general fundamentals suggest that gold’s price will keep climbing as the years go by.

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