One milestone was surpassed this morning, and the other’s eventual passage is inevitable as far as strategists can see. And while Federal Reserve officials have, by and large, been more inclined to believe inflation will recede as the economy continues to slow, it’s hard to be sanguine about oil hitting an all-time inflation-adjusted high while the price of gold homes in on $1000 an ounce.

That’s because those commodities aren’t alone. Today, RBOB gasoline, heating oil and silver are all at new record highs, while other major commodities such as copper, corn, and soybeans continue their moves upward.

“The commodity space is quite firm and this is in the face of pretty lousy economic figures coming out of the US,” says Bart Melek, global commodity strategist at BMO Capital Markets.

Oil

Oil surpassed its inflation-adjusted high of $103.76 in trading on the Nymex today, topping out at $103.92 a barrel before retreating a bit, and gold traded on the Comex division of the Nymex was at $987.60, with $1000 not far off. Analysts say it points to ongoing commodity inflation, suggesting that demand remains strong enough elsewhere to offset the weakness in the U.S. economy.

John Abbink, director of manager research at National City Private Client Group, says subsidies for commodities from emerging economies is helping to keep prices inflated even if demand declines due to the higher overall prices. “Slower growth will cut into emerging economies’ commodity demand at the margin, but not enough to offset the role of subsidies in keeping demand and thus prices elevated,” he writes.

Part of what keeps prices elevated, in some sense, is related to the dollar, as both oil and gold prices (among many commodities) are priced in dollars, and the dollar index has reached its lowest point since inception in 1973. “The dollar is the connecting link between the near-$1000 gold and $103-oil,” says Ashraf Laidi, chief forex strategist at CMC Markets.
Gold
But Brian Bethune, economist at Global Insight Economics, believes speculative investing and supply-side shocks are the culprits for the rising commodity prices. He says deflation is present in many other consumer goods purchased in the U.S., and lower demand should reduce these prices ultimately as well, calling the talk of rampant inflation a “frenzy.”

If so, it’s a frenzy that’s likely to persist for a time. Mr. Melek says “there has to be clear evidence that consumption in the developing world is slowing” before prices pull back.