It kicked up to a still-sanguine 16 last week as investors fretted about deepening tensions in the Middle East, but has since settled down to around the 15 level.
And while S&P 500 has managed to climb close to 10 per cent so far this year, its performance has been outstripped by the SPDR Gold Shares ETF, which jumped 14.1 per cent in the same period.
Meanwhile, the Energy Select Sector SPDR, which concentrates on the big US-based majors and is favoured as a hedge by investors, has risen 15 per cent so far this year.
What’s more, analysts argue there are good reasons for the gold and oil rallies to continue.
Central banks set to buy gold
So far, the rally in the precious metal has been mainly driven by central bank buying, particularly by the People’s Bank of China. Chinese retail investors have also driven the physical demand for gold, both for jewellery and investment. The slump in the Chinese property market, combined with the country’s struggling sharemarket, are both working to burnish gold’s status as a store of wealth.
There are signs that the latest spike in the gold price has caused central bank purchases to cool. Central banks tend to be patient buyers of gold, taking advantage of low prices, and then pulling back when prices move higher.
Still, the likelihood that central banks will resume their buying on any sign of price weakness is helping to underpin gold prices in much the same way that the belief in the “Fed put” – the assumption the US central bank would step in to support the financial market if prices fell too far – has buoyed those markets.
Meanwhile, energy markets have rebounded strongly after their 18-month slide from the peak reached after Russia’s invasion of Ukraine in February 2022 sent the oil price hurtling above $US100 a barrel.
Investors now believe that stronger economic activity in both the United States and China, the world’s two largest economies, will boost demand.
And there are also worries about tightening oil supplies, as the Organisation of the Petroleum Exporting Countries and its allies limit oil production.
The giant hedge fund Citadel this week warned that oil markets are set to become “extremely tight” in the second half of this year, as the oil cartel OPEC+ reasserts its control of the market.
Traders also fear that global oil supplies could be affected by Ukrainian drone attacks on Russian oil refineries, aimed at crimping production and reducing the oil revenue Russia has available to fund the war.
And this has prompted warnings that the combination of rising oil prices and outperformance among US energy stocks has historically been a bad sign for the US share market.
Just cast your mind back to 2022, when the Energy Select Sector SPDR delivered a handsome 64 per cent return, while the S&P 500 suffered its worst year since 2008, dropping nearly 20 per cent.
