Gold and Oil Soar Together: The Geopolitical, Inflation, and Supply-Demand Logic Behind the Commodity Bull Market

Gold and Crude Oil Soar Together: The Logic Behind the Commodity Bull Market

Recently, global commodity markets have shown a rare pattern of "gold and crude oil soaring together." Gold, as a safe-haven asset, continues to rise, while crude oil climbs strongly amid geopolitical and supply-demand dynamics. The simultaneous strength of these two core commodities is driven by multiple factors, including geopolitical risks, renewed inflation expectations, and dramatic shifts in supply-demand fundamentals. This article analyzes the driving logic behind this commodity bull market from a derivatives market perspective.

Geopolitical Risks: A Dual Resonance of Safe-Haven Demand and Supply Shocks

Geopolitical tensions are the primary catalyst for the recent simultaneous rise in gold and crude oil prices. According to multiple international media reports, the situation in the Middle East continues to escalate, with friction among major oil-producing countries heightening market concerns about potential disruptions to crude oil supply. Meanwhile, the prolonged Russia-Ukraine conflict continues to disrupt energy and precious metals markets. Gold, as a traditional safe-haven asset, attracts significant capital inflows during heightened geopolitical risks, while crude oil gains direct price support due to supply-side uncertainties. In derivatives markets, implied volatility for both gold and crude oil options has risen significantly, indicating that traders are hedging against tail risks.

Renewed Inflation Expectations: Falling Real Rates Drive Gold Allocation

Although major central banks' rate-hiking cycles are nearing their end, inflation persistence has exceeded expectations. According to the latest Federal Reserve meeting minutes, policymakers are cautious about the pace of inflation decline, suggesting that high interest rates may persist longer. However, market expectations for long-term inflation have not faded—the U.S. 10-year breakeven inflation rate remains at multi-year highs. Real interest rates (nominal rates minus inflation expectations) are thus under pressure, which directly benefits gold. Gold itself yields no interest, so the lower the real interest rate, the lower the opportunity cost of holding gold. In derivatives markets, open interest in gold futures continues to increase, with speculative long positions rising, reflecting institutions' repricing of gold's inflation-hedging attributes.

Supply-Demand Fundamentals: Crude Oil Inventory Drawdowns and Central Bank Gold Purchases

From a supply-demand perspective, the crude oil market is experiencing a combination of tightening supply and resilient demand. According to the International Energy Agency (IEA) monthly report, global crude oil inventories have been declining for several months, with major oil-producing countries (e.g., OPEC+) maintaining production cuts and U.S. shale oil production growth slowing. On the demand side, industrial activity in Asian economies, particularly China, is recovering, supporting crude oil consumption resilience. In derivatives markets, the forward curve for crude oil futures shows a pronounced backwardation, where near-month contract prices exceed far-month contracts, typically signaling tight supply.

For gold, central bank purchases are a key price support. According to the World Gold Council, global central banks' net gold purchases exceeded 1,000 tonnes for the third consecutive year in 2024, with emerging market central banks (e.g., China, Poland, India) being major buyers. This trend continues into 2025. Central bank buying not only directly increases physical demand but also sends a signal of "de-dollarization" and reserve diversification. In derivatives markets, while gold ETF holdings have not grown significantly, over-the-counter derivatives trading volume (e.g., gold swaps) has notably increased, indicating that institutional investors are using customized instruments for gold allocation.

Derivatives Market Signals: Volatility and Capital Flows

From derivatives market indicators, implied volatility for both gold and crude oil is at historically mid-to-high levels. Gold's 30-day at-the-money implied volatility recently climbed to around 18%, while crude oil's remains above 35%. The steepening of the volatility curve suggests that the market expects greater price fluctuations ahead. Regarding capital flows, according to the CFTC's Commitment of Traders report, speculative net long positions in gold futures have hit a one-year high; net long positions in crude oil futures have also recovered, albeit more modestly. Notably, the cross-asset correlation between gold and crude oil has recently strengthened significantly, which is uncommon in asset allocation, implying that the market is pricing based on a composite logic of "inflation plus risk."

Outlook: Can the Bull Market Continue?

Looking ahead, whether the simultaneous strength of gold and crude oil can persist depends on three key variables: first, whether geopolitical conflicts escalate further, particularly the impact of Middle East tensions on shipping through the Strait of Hormuz; second, whether global inflation substantially declines in the second half of 2025, thereby altering the path of real interest rates; and third, the resilience of demand in major economies, especially the effect of China's fiscal stimulus policies on industrial demand.

From derivatives pricing, the forward curve for gold futures remains in mild contango, but the premium on near-month contracts is widening, indicating tightness in the spot market. If crude oil futures' backwardation structure persists, it will attract arbitrage capital inflows. Overall, with macro uncertainties unresolved, central bank gold buying trends unchanged, and crude oil supply elasticity insufficient, the underlying logic of the commodity bull market has not reversed. Investors can manage risk and returns through option strategies (e.g., buying call options while selling out-of-the-money calls) or cross-commodity spread strategies (e.g., long gold/short crude oil ratio).