The Strait of Hormuz remains effectively closed. The US blockade has turned away 58 commercial vessels from Iranian ports. Iran’s adviser to the supreme leader called Hormuz control an “atomic bomb” and said Iran will never give it up. Three US destroyers were fired upon by Iranian missiles and drones on Thursday. Gold is at $4,715. And despite all of this, gold is still 41.86% higher than it was one year ago.
These two facts — the ongoing closure and the extraordinary year-on-year gain — are not in tension. They are the same story told at different time scales. In the short term, Hormuz being blocked has paradoxically pushed gold lower since February because blocked Hormuz means elevated oil means elevated inflation means rate hike fears means stronger dollar means pressure on gold. That short-term mechanic has been brutal and real. But in the long term, the reason gold is 41.86% above where it was a year ago is precisely the same geopolitical and macroeconomic instability that is causing the short-term dip. Gold rose before the war. Gold will rise after it. The war itself is the distortion, not the underlying trend.
This week the distortion gets measured. Tuesday May 12 brings the US Consumer Price Index for April — the first full monthly inflation reading that incorporates the complete effect of $100-plus oil. Analysts expect a headline CPI print that is uncomfortably high. If the number confirms that oil has pushed inflation to 4% or above on an annual basis, gold faces a scenario where the Federal Reserve might need to discuss rate hikes rather than cuts. If the number is lower than feared — perhaps because falling oil prices in the last two weeks of April dragged the average lower — then rate cut expectations revive and gold has its clearest path to $4,850 and beyond since January.
Wednesday May 13 brings PPI — the producer prices that lead consumer prices by three to six months. A hot PPI tells you May and June CPI will be worse still. A cooling PPI is an early signal that the inflationary peak is passing.
