Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / How Gold Is Surging Past 4000 While Inflation Cools
Transcript
- Lucas: Gold just crossed four thousand dollars an ounce, and it's not stopping. As of this evening, August gold futures are at four thousand eighty-eight, up two point six percent in just the last five days. That's a fresh all-time high, and it's happening while the broader inflation story is actually cooling. Luna: Right — the June CPI came in at three hundred thirty-two point six, down from three hundred thirty-four in May. Core CPI barely budged. So the classic narrative — gold as an inflation hedge — doesn't really explain this rally. Lucas: Exactly. If you looked at the macro picture in isolation, you'd think gold should be flat or even down. The ten-year breakeven inflation rate is at two point two five percent, basically unchanged. Real yields aren't collapsing. The dollar isn't cratering. So what's driving it? Luna: I mean, before we go deep — if walking through the economy with us has made something click, the reason these episodes stay ad-free is listener support. You can buy me a coffee dot com slash fexingo. It's a small way to keep the conversation going. Lucas: Yeah, and it really does make a difference. So — back to gold. The biggest factor right now is central bank buying. The World Gold Council reported that central banks bought one thousand thirty-seven tonnes of gold in 2025, the second-highest year on record. And 2026 is tracking even higher. Luna: That's incredible. And it's not just the usual suspects. China has been adding gold for eighteen consecutive months. Poland, India, even smaller central banks in Central Asia and the Middle East are all diversifying away from US Treasuries. Lucas: Right. There's a de-dollarization theme that's been building for years, but it's accelerating. After the freezing of Russian central bank assets in 2022, a lot of countries realized that holding dollars or euro-denominated reserves comes with geopolitical risk. Gold doesn't have a counterparty. Luna: So it's a reserve diversification play, not a hedge against inflation. That changes how we think about gold's fair value. Lucas: Exactly. And what's interesting is that this buying is largely price-inelastic. Central banks aren't waiting for a pullback. They're buying on dips, they're buying at highs. The People's Bank of China alone added over forty tonnes in the second quarter of 2026. Luna: And retail and institutional investors are piling in too. The big gold ETFs — GLD, IAU — have seen net inflows for six straight weeks. Plus, silver is surging alongside gold, up five point six percent in five days to fifty-nine dollars. Lucas: Silver often catches up to gold late in a rally, but the magnitude here suggests genuine physical demand. Industrial demand for silver — solar panels, electronics — is strong, and that adds a floor. But the speculative element is definitely there. Luna: So the question becomes: is this sustainable? Gold at four thousand plus — can it go higher, or is it due for a correction? Lucas: I think the structural case is solid. Central bank buying isn't going to reverse overnight. But the pace of the recent move — up over twenty percent year-to-date — does raise some near-term caution. If we see a sudden spike in real yields or a sharp dollar rally, gold could give back some gains. Luna: And the Fed's next move matters. If they cut rates, that's obviously bullish. If they hold, the opportunity cost of holding gold stays high. But the market seems to be looking past that. Lucas: Yeah, I think the market is pricing in that central banks will keep buying regardless of the Fed. And that's a powerful tailwind. Some analysts are already talking about four thousand five hundred by year-end. I'm not ready to go that far, but the trend is clearly higher. Luna: One thing I keep coming back to: the correlation between gold and real yields has broken down. Normally, when real yields rise, gold falls. But that relationship has been much weaker since 2022. That suggests a regime change. Lucas: Absolutely. The old playbook doesn't apply. Gold is behaving more like a reserve currency now than a commodity. And if that's the case, the upside could be significant, especially if more central banks follow the trend. Luna: So for listeners who want to participate, what's the best way? Physical gold, ETFs, mining stocks? Lucas: It depends on your time horizon and risk tolerance. Physical gold is the purest play but has storage and liquidity costs. ETFs like GLD or IAU are easy. Mining stocks offer leverage to the gold price but come with operational risk. The gold miners ETF, GDX, is up about eighteen percent this year, but it's more volatile. Luna: And don't forget silver. If gold continues to rally, silver typically outperforms on the upside. It's already showing that this week. Lucas: Right. But silver can also fall harder. It's a dual-use metal — industrial and monetary. So if the economy slows sharply, industrial demand could drag it down. Luna: What about the broader commodity complex? Oil is up too — Brent at ninety-one dollars, WTI at eighty-four. Copper is at six fifty-three. Is there a coordinated rally, or is each market telling its own story? Lucas: I'd say each market has its own narrative. Oil is being driven by geopolitical risk — Strait of Hormuz tensions, Saudi output cuts. Copper is about electrification and supply constraints. But gold is unique because its driver is structural demand from central banks. Luna: So it's not a 'commodity supercycle' story. It's a gold-specific story. Lucas: Exactly. And that's why I think the gold rally has more room to run, even if other commodities correct. The demand base is different. Luna: Alright, let's keep an eye on central bank gold reserves data next month. If we see another big jump from China or Poland, that could be the next catalyst. Lucas: For sure. And if the Fed signals a rate cut in September, that would add fuel. But even without it, the trend is your friend.