What does inflation, deflation mean for commodities?
Range-bound oil has for now lost its value as an inflation hedge, while gold has been spurred to a series of records by expectations of inflation and deflation as the world’s central banks are poised for further stimulus. Increased energy efficiency and other measures to reduce the impact of fuel prices, such as corporations cutting costs to compensate, have helped to contain any inflationary effect from oil. That has diluted the commodity’s traditional value as an inflation hedge, which should gain in value when other assets are eroded by price pressures. Against the backdrop of protracted economic slowdown, some traders have switched focus to deflation as more probable than any significant inflation in the near term. The effect on oil and industrial metals would probably be negative as deflation is associated with economic contraction and shrinking demand. Many analysts have revised downwards their expectations of the average oil price and most expect the market to rise only modestly
