Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Gold and Silver Surge While the Dollar Drops
Transcript
- Lucas: So gold is at $4,348, up more than 6% in the last five trading days. And silver—silver has exploded, up over 9% in the same window, now trading at just under $70 an ounce. Luna: Meanwhile crude oil is getting hammered. WTI down 8.3% in five days, Brent down 8.4%. That's a massive divergence. Lucas: It really is. And the common narrative you hear is 'safe haven buying because of the Iran deal uncertainty'—but actually, the deal got done. Over the weekend, the U.S. and Iran reached an agreement. That should theoretically reduce geopolitical risk, which is typically bearish for gold and bullish for oil. Luna: Right, you'd think oil would rally on supply certainty and gold would fade. But we're seeing the exact opposite. Lucas: Exactly. So the real driver here isn't geopolitical risk—it's the dollar. The dollar index has dropped sharply since the deal was announced. When the dollar weakens, commodities priced in dollars—especially gold and silver—become cheaper for foreign buyers, so demand picks up. Luna: And oil is falling because… the market is now pricing in more Iranian barrels coming back online? Lucas: That's part of it. The deal lifts sanctions on Iranian oil exports, so you're looking at potentially an extra 1 to 1.5 million barrels per day hitting the market. But there's also a demand-side story. The latest PCE data—core PCE came in at 3.1% year-over-year for April. That's still sticky. And the market's repricing rate expectations. The 10-year breakeven inflation rate is at 2.32%, basically flat. So the inflation narrative that was driving oil higher earlier this year is losing steam. Luna: So gold is rallying on dollar weakness and silver is just riding that wave even harder? Lucas: Silver has its own story. Yes, it benefits from the dollar move, but silver is also an industrial metal. Over 50% of demand comes from industrial uses—solar panels, electronics, medical devices. And solar manufacturing is booming. Global solar installations are expected to grow 25% this year. That's a massive silver-intensive trend. Luna: So silver is getting this dual boost: monetary demand from the falling dollar and industrial demand from the green transition. Lucas: Precisely. And that's why silver is outperforming gold this week. Gold is up 6%—impressive—but silver is up 9%. The gold to silver ratio has compressed from about 85:1 a month ago to around 62:1 today. That's a big move. Luna: And you mentioned the dollar—what's the outlook there? The Fed meets this week. Does a potential rate cut factor into this? Lucas: The Fed is widely expected to hold rates steady at the June FOMC meeting. But the market is pricing in a cut later this year. If the Fed signals dovishness, the dollar could weaken further, which would support metals. But if they push back on cuts, you could see a reversal. Luna: So the commodity trade right now is really a macro trade on the dollar and rate expectations, not just supply-demand fundamentals. Lucas: It is. But you still have to watch the fundamentals. For oil, the supply overhang from Iran is real, but also OPEC+ has been cutting. If they extend cuts, that could put a floor under prices. But right now the market is focused on the new supply. Luna: And what about the rest of the commodity complex? Natural gas is up 3% this week, copper up 3%. Are they also benefiting from the weaker dollar? Lucas: To some extent. Copper especially has a strong industrial demand story—electrification, EV infrastructure. But copper is also sensitive to China's economic data, and that's been mixed. The 3% move this week is mostly dollar-driven. Natural gas is a bit different—that's more about weather forecasts and storage levels. Luna: So the big picture is: the Iran deal reshuffled the deck. Dollar down, metals up, oil down. Lucas: And that reshuffling is likely to persist for a few weeks at least, until we get clearer signals from the Fed and actual data on Iranian exports. But for now, the trade is clear: long gold and silver, short crude. Luna: It's interesting how the 'safe haven' narrative has flipped. Gold is supposed to be a hedge against uncertainty, but here it's rallying on the resolution of a major geopolitical risk. Lucas: Because the resolution weakened the dollar. That's the key. Gold's relationship with the dollar is more immediate and reliable than its relationship with geopolitical headlines. Headlines change fast; the dollar trend is more durable. Luna: If walking through the economy with us has made something click, and you'd like to help keep this show ad-free and independent, you can support us at buy me a coffee dot com slash fexingo. It's a simple way to say you value the work. Lucas: We really appreciate that. It helps us keep digging into these stories without chasing clicks. And it keeps the podcast accessible to everyone. Luna: So back to the metals—silver at $70. Do you think it can sustain this level? Lucas: It depends on the dollar and industrial demand. If the Fed cuts rates and solar installations keep growing, silver could easily test $75. But if the dollar strengthens or industrial demand softens, you could see a pullback. The volatility in silver is always higher than gold. Luna: So for investors, it's a higher-risk play. But the setup right now seems favorable. Lucas: It does. But you have to be disciplined. Silver can move 5% in a day. Position sizing matters. Luna: And what about gold? Is $4,400 the next resistance level? Lucas: I think so. There's not much resistance until $4,500. But if the dollar stabilizes, gold could consolidate around $4,300-$4,400. The big question is the Fed's stance. Luna: Alright, so we're watching the FOMC statement on Wednesday for the next big catalyst. Lucas: Exactly. That and any news on Iranian oil exports. Those two factors will determine whether this divergence continues or reverses.