According to data from the Bloomberg service, never before in history have there been so many articles containing the word stagflation. Financial markets seem to live with this topic, which may influence both quotations of stock prices and gold quotations.
Yesterday's session on Wall Street showed declines in major stock indices. The Dow Jones fell by 250 points, the S&P 500 was down by more than 0.6 percent and the Nasdaq 100 by more than 0.5 percent. Investors seem to be worried that the rising prices of raw materials, including oil, coal, gas and recently also aluminum, which is the most expensive in 13 years, may hamper production, which in turn may affect the global slowdown in the economy. Shortages of various components continue to appear around the world, which can negatively affect factory operations, as exemplified by the closure of Skoda car production for several months. So the topic of stagflation and shortages could still be very relevant. It seems that it will clash with the results of US companies for the third quarter, which the US banks will start publishing.
Oil price stabilizes after rise
The aforementioned oil price seems to have stabilized after its recent strong rise above the $81 per barrel WTI level. This level was last seen in October 2014, and the oil price rally seems to have continued uninterrupted for seven weeks. This morning the price of a barrel of WTI is above $80. Oil has been able to rise so strongly recently because it has become an alternative to gas or coal as a slightly cheaper source of energy. Thus, demand has been able to rapidly outstrip supply in a very short time, leading to the aforementioned price rally.
Gold defends price despite rising US bond yields
It seems that we are dealing with a very interesting phenomenon on the gold market. Looking historically at the price of gold bullion and the price of futures contracts on US 10-year Treasury bonds, one can see a positive correlation. This means that rising bond prices may have caused gold prices to rise, while falling bond prices may have caused gold prices to fall. Currently, U.S. bond prices seem to be falling and yields are rising into the 1.6 percent region, the highest in 4 months. Gold, on the other hand, is still hovering in the region of $1,750 per ounce, which could mean that it is not deepening declines in the wake of falling bond prices. This, in turn, may show that gold is somewhat accumulating at current price levels, perhaps out of fear of the stagflation that awaits us this winter, or of the Fed backing away from the rapid pace of monetary policy normalization. We will know more about this on Wednesday during the publication of "minutes" from the last FOMC meeting.
Daniel Kostecki, Conotoxia Ltd. (Forex service)
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