Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why the Oil and Gold Divergence Matters Now
Transcript
- Lucas: So it's late May 2026, and there is this really interesting split opening up in commodities. Crude oil has been getting hammered — West Texas Intermediate down about four and a half percent in the last five days, Brent down a full eight percent. Meanwhile, gold is sitting just above forty-four ninety an ounce, basically flat on the week. Luna: That is a pretty striking divergence. Usually when oil drops that hard, it signals a broader demand scare, and gold tends to fall too as part of the liquidation. Lucas: Right, that's the classic correlation. But we're not seeing it this time. And I think the story is less about the oil sell-off itself and more about what gold's resilience tells us about the macro backdrop. Luna: So what exactly is driving the divergence? Is it inflation expectations staying elevated? Lucas: That's a big piece of it. The latest CPI reading came in at 332.4, up from 330.29, and core CPI — which strips out food and energy — actually rose to 335.4. So the very things that are making oil cheaper — potential demand slowdown, maybe some easing of supply fears — aren't translating into lower core inflation. Luna: And the ten-year breakeven inflation rate is sitting at 2.40 percent, which is actually up a tick from the prior week. Lucas: Exactly. That's the market's way of saying 'we still expect inflation to run above the Fed's target for the foreseeable future.' And gold loves that narrative. It's a store of value when purchasing power is eroding. Luna: So oil is getting hit by a demand worry — maybe the Iran talks progressing, maybe just global growth slowing — but gold is saying 'none of that matters, I'm priced for stickier inflation.' Lucas: That's the punchline. And there's also the central bank angle. We've seen sustained gold buying from central banks, particularly in emerging markets, as they diversify away from dollar reserves. That's a structural bid that doesn't care about the weekly oil trade. Luna: So if I'm an investor looking at this, does it change how I think about commodities as a portfolio hedge? Lucas: I think it forces you to be more selective. The old idea that 'commodities are all one asset class' is clearly breaking down. You need to understand the specific drivers for each commodity. Oil is more cyclical, demand-sensitive. Gold is more monetary, inflation-sensitive. They can go in opposite directions for months at a time. Luna: And the energy stocks are reflecting that oil pain. ExxonMobil is down almost eight percent in five days, Chevron down nearly seven percent. Lucas: Yeah, the XLE energy ETF is off more than five percent. So if you own energy equities as an inflation hedge, you're getting killed right now, even as inflation prints stay hot. That's the divergence in action. Luna: Do you think this changes the calculus for the Fed at all? If oil is falling but core inflation isn't, do they still have cover to pause? Lucas: I think the Fed looks at core inflation and the breakeven rate, not at oil's weekly move. Oil is volatile. They've said that many times. A few weeks of falling crude doesn't prove inflation is licked, especially when shelter and services inflation are still sticky. Luna: So the oil sell-off might actually be a bit of a mirage for the inflation outlook. Lucas: Exactly. And that's why gold is holding firm. The market is pricing that the inflation problem is more structural than cyclical. And as long as that's the case, gold has a bid. Luna: Let's talk about the gold side a bit more. We saw gold hit forty-five hundred earlier this month. It's pulled back a bit, but it's still incredibly elevated by historical standards. What's the next catalyst? Lucas: I think the next big move for gold depends on whether real rates start to fall again. Right now, the ten-year real yield — that's the nominal yield minus breakeven inflation — is still positive but not hugely so. If the economy slows and the Fed eventually cuts, real yields drop, and gold tends to rally. Luna: So there's a scenario where both oil and gold could actually rally if the Fed cuts? Oil on demand stimulus, gold on lower real rates? Lucas: That's possible, but we're not there yet. Right now the market is in this weird place where oil is pricing a demand slowdown while gold is pricing persistent inflation. Something has to give. Luna: And which one do you think is right? Lucas: I lean toward the gold narrative, honestly. The oil move feels overdone in the short term. But in commodities, being early is the same as being wrong, so I wouldn't step in front of it yet. Luna: Fair. So what should a listener do with this? If they own commodities, how do they position? Lucas: I think diversification within commodities is key. Don't just own oil and assume you're hedged. Look at gold, look at industrial metals like copper — copper is actually up on the week. And if you own energy stocks, understand that they are not a perfect inflation hedge anymore. Luna: Copper is interesting. It's up almost two percent in five days, even as oil is getting crushed. That suggests there's still some optimism about industrial demand. Lucas: Yeah, copper is often called 'Dr. Copper' because it has a PhD in the global economy. Right now it's saying 'the economy isn't collapsing, just rotating.' And that's consistent with gold holding up too. Luna: So the real story this week is not that commodities are falling. It's that they are diverging in a way that tells us something meaningful about the macro environment. Lucas: Exactly. And I think that's the takeaway. Pay attention to the spread between oil and gold. If it widens further, it's telling you that markets are pricing a very specific kind of slowdown — one where inflation stays hot even as growth cools. Luna: Which is basically the worst of both worlds for central banks. Lucas: Right. And you know, this kind of deep dive is exactly why we do this show — to help people understand not just what prices are doing, but why. If walking through the economy with us has made something click for you, we'd love to have you as a supporter. It's what keeps this ad-free and focused on the actual analysis. Luna: Yeah, totally. A small contribution from listeners who get value from the show really does make a difference. You can support us at buy me a coffee dot com slash fexingo. Lucas: And honestly, even just knowing people are listening and finding it useful is what keeps us going. So thanks for being part of this. Luna: Alright, back to the divergence. Lucas, what are you watching for in the next week that could break this pattern? Lucas: I'm watching the next CPI print, of course. If core CPI starts to dip, gold could lose some of its bid. And on the oil side, any real progress on Iran — or lack thereof — could swing crude significantly. The headlines today are about Trump hosting a cabinet meeting on Iran talks, so that's definitely a near-term catalyst. Luna: So stay tuned. And maybe don't assume that oil and gold move together anymore. Lucas: Exactly. The old rules are breaking down. And in markets, that's when the best opportunities — and the biggest risks — show up.