Gold is a special kind of dirt that is used as money, even today, in large parts of the world. Because of this use, it serves, even for some central banks, as a substitute for the US dollar. What it costs to mine an ounce of gold is an esoteric topic. $1400 an ounce is a reasonable guess, I think, even though miners routinely mine lower grade ore as the gold price rises, and vice versa.
Anyway, the gold price is now around $3400 an ounce, or about 2.5x production cost. That’s a huge spread. I read this as expressing the strong global fear that the administration in Washington is attempting to devalue the dollar, as a way to somehow reinvigorate manufacturing in the US and/or to lower the real cost of repaying the government’s extensive borrowing from foreign investors. Of course, it’s also possible that Mr. Trump simply wants to replicate the money policy of the US in the 1970s–and, unlike the rest of the world, he and his advisors are somehow unaware of what an economic disaster that period was.
OPEC is increasing its oil production, as prices rise. To my mind, OPEC is also being careful to release enough new output that it keeps prices low enough that fracking in the US is at best only marginally profitable. This puts the US administration in an awkward position. Middle eastern producing countries have been very big supporters of the president’s family. They’ve enhanced the Trump golf empire by scheduling LIV events there. And they’ve offered the Trump family many real estate and other investment opportunities. But for the Saudis in particular, who control decades worth of potential output from very low-cost producing areas, keeping fracking economically unviable seems to be a key goal. On the other hand, frackers are key members of the Trump political coalition.
As far as the stock market goes, although in the late 1970s-early 1980s (when I was an oil analyst and spent a lot of time on mining, too) oil was the largest sector in the S&P 500, neither oil nor gold have more than miniscule direct representation in the S&P of today.
My guess is that oil will move sideways from here. And, although I’m not chomping at the bit to hold physical gold or gold mining stocks, I think they both will continue to be strong on the worry that, wittingly or not, Trump will ignite something akin to the disastrous domestic inflation of the second half of the 1970s.