Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Oil and Gold Are Decoupling as Iran Tensions Flare
Transcript
- Lucas: So WTI crude is sitting around 82 dollars a barrel this morning, down more than 8 percent in just the past five days. Meanwhile, gold is holding above 4,100, actually up a little over the same stretch. That's a pretty stark decoupling, and it's happening against a backdrop of cooling inflation. Luna: Right — the June CPI came in at 332.6, down from 333.98 in May. Core CPI was basically flat. Normally that would be bad for gold, since it's supposed to be an inflation hedge. Lucas: Exactly. And yet gold hasn't budged. In fact, it's up. So the question is: what's propping it up? I think the answer is pretty clearly geopolitical risk. This morning's headlines about Iran launching a ballistic missile attack on U.S. forces are a reminder that the world hasn't gotten any safer. Luna: And interestingly, oil actually jumped on that news. So for a few hours, we saw both assets rally together. But the five-day picture still shows oil getting hammered. Lucas: Right. The oil plunge started before the attack — it was about demand fears. The market was pricing in a global slowdown, maybe even a recession, and that crushed crude. Brent fell even harder, down 10 percent over the same period, to around 87 dollars. Luna: So now we have this tug of war: oil's got a geopolitical tailwind from Iran, but a fundamental headwind from demand. Gold is riding the geopolitical wave while ignoring the inflation data. Lucas: Gold is also getting support from expectations that the Fed will cut rates sooner rather than later. When real rates fall, gold becomes more attractive. And with inflation easing, the market is pricing in a higher chance of rate cuts later this year. Luna: But oil doesn't benefit from rate cuts the same way. Lower rates could boost economic activity, which would be positive for demand, but that's a slower-moving effect. The immediate fear is that we're already in a demand slump. Lucas: Yeah. And look at the data: the ten-year breakeven inflation rate has dropped to 2.20 percent, down from 2.21. That suggests the market expects inflation to keep cooling. For gold, that should be a negative, but the safe-haven bid is outweighing it. Luna: So is gold now more of a risk-off asset than an inflation hedge? Because during the post covid inflation surge, gold actually underperformed. Now it's rallying while inflation falls. Lucas: I think that's fair. Gold's role has shifted. In a world with high debt, geopolitical uncertainty, and currency debasement fears, it's become a portfolio insurance policy. The fact that it's holding above 4,100 even as CPI drops tells you the market is buying protection. Luna: And oil — it's still well above its pre-pandemic levels, but the trajectory is concerning. WTI peaked above 120 during the Russia-Ukraine shock, then we had the Iran de-escalation that sent it lower, and now it's bouncing around 80 again. Lucas: The Iran attack is a wildcard. If the conflict escalates and disrupts supply through the Strait of Hormuz, oil could spike back to 100. But if it blows over quickly, the demand story will reassert itself. Luna: That's a huge range of outcomes. How do you even position for that as a commodity investor? Lucas: It's tricky. Some traders are buying gold and selling oil as a hedge: long gold, short crude. That trade benefits from the deceleration scenario — geopolitical risk supports gold, demand weakness hurts oil. But it's vulnerable to a genuine supply disruption. Luna: So it's a bet that the demand side dominates over the supply side. And that's a pretty macro-bearish bet. Lucas: Exactly. It's saying the global economy is fragile. And if you look at other commodities, copper is basically flat this week, up 0.4 percent. That's not a vote of confidence in growth either. Luna: And natural gas is down over 6 percent. So it's not just oil — energy is getting sold off broadly. Only gold and a few grains are bucking the trend. Lucas: Right. Corn is up almost 4 percent this week, likely on weather concerns. But that's a supply story, not a demand story. The macro narrative is definitely risk-off outside of safe havens. Luna: So to bring it back to the decoupling: oil and gold are telling very different stories about the same world. One is pricing in recession, the other is pricing in fear. Lucas: And the market has to decide which story wins. The Iran attack adds a layer of uncertainty that could flip both narratives. If oil spikes on a real supply shock, gold might rally even more — but if it's just a temporary blip, oil could resume its slide. Luna: That's the kind of insight that makes you realize how interconnected everything is. And if walking through these economic crosscurrents is something you find valuable, there's a way to support the show. Lucas: Yeah, listener support is what keeps us ad-free and independent. If you've gotten something out of this conversation, you can head to buy me a coffee dot com slash fexingo. It's a simple way to chip in. Luna: And it genuinely helps us keep digging into the stories that matter. No pressure, just an option. Lucas: Anyway, back to the decoupling. I think one key thing to watch is the Fed's next move. If they signal a pause or a cut in September, gold could get another lift, while oil might struggle if the economy slows further. Luna: And if the Iran situation escalates, all bets are off. Then we're back to oil at 100 plus, gold at 4500, and inflation fears reignited. Lucas: Exactly. That's the tail risk. For now, the data suggests inflation is cooling, the economy is slowing, and gold is the beneficiary of the uncertainty. Oil is the casualty of the growth scare. We'll see if Iran changes that equation. Luna: A lot to digest. Thanks for breaking it down, Lucas. Lucas: Thanks for the great questions, Luna. That's it for today's Commodities Economy — we'll keep tracking these moves.