Gold is Leading the Rest of the Commodities
Gold is the leading commodity. This means that as long as gold maintains its bullish momentum, many other commodities may follow this uptrend. Commodities, after all, are also considered inflation-hedge assets.
Currently, the prices of most commodities are higher than their pre-COVID levels, with gold, copper, and cattle significantly higher. Most investors and consumers perceive that the cost of living remains elevated and may continue to rise. This sentiment is not unfounded.
Take steak prices, as reflected in feeder cattle, for example. In 2022, when the U.S. Consumer Price Index (CPI) peaked at 9%, steak prices were already high. Now, even though inflation has eased to around 2–3%, steak prices are at an all-time high.
Gold Started Its Climb in the 1970s
When President Richard Nixon announced the removal of the gold standard on August 15, 1971, gold began its climb from US$35 per ounce. By the time the U.S. Department of the Treasury first issued the 30-year Treasury bond (T-bond) in 1977, gold had surged significantly, reaching US$875 from US$100 in 1976.
Gold’s movement accelerated during the era of quantitative easing programmes. When Japan initiated its first quantitative easing programme in March 2001, followed by the U.S. in 2008, gold climbed from its 1999 low of US$252 to a peak of US$1,920.
During the COVID-19 pandemic, as the Federal Reserve embarked on another massive quantitative easing programme, gold stabilised at US$1,615 before reaching its recent all-time high.
Gold is more than a precious metal; it functions as a currency against other currencies. As groups of currencies weaken, gold appreciates.
Debt and Quantitative Easing Programmes Weaken Currencies and Cause Inflation
Inflation-hedge assets like gold appreciate due to the effects of debt and quantitative easing programmes. Debt represents borrowed money, while quantitative easing is essentially money printing. Both actions dilute the value of currencies, leading to inflation.
When comparing the U.S. dollar or the Japanese yen with other currency pairs, both have weakened due to these factors. Switzerland and Singapore are well known for their prudent financial management.
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From a technical perspective, crude oil prices have been consolidating into a narrowing range, indicating a potential breakout. Such movements are often triggered by fundamental developments, such as supply-demand imbalances, geopolitical tensions, or a weakening U.S. dollar.
As long as debt and quantitative easing continue to grow, inflation pressures are likely to persist. For more insights, check out this video.
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