WEEK AHEAD: NOV 15

Short Description

Hedging Inflation with Gold....

Video Script

Hi everyone, we’ve got another busy week in markets coming up and I’m here to preview it with you. The price of gold has broken out to its highest in months, so is there still time to buy it? One reason to think there might be is that Gold is an inflation-hedge and US inflation just reached its highest in over 30 years. So stay tuned for my preview of the week ahead, which features more inflation data from Japan, Europe, the UK and Canada - and lot’s more!

 

As I just mentioned - the big news in the last week was that US inflation soared in October. The US consumer price index rose 6.2% annually, that’s its highest since 1990. It’s certainly not the first time I’ve mentioned inflation in these videos - but it’s finally starting to get wider attention. 

 

Markets reacted to the spike in US inflation with a jump in the US dollar, forcing the EUR/USD forex pair to its lowest in 16 months - but also interestingly with a jump in gold to a 5-month high. I say interestingly because gold will often move in the opposite direction to the dollar so I would argue it's a sign of gold’s strength if it can rise even when the dollar is rising too. I should also mention that stock indices fell on the news, while the VIX rose back towards 20.

   

So how can we unpack all this into a decision on trading gold? Well again it comes down to inflation. High inflation is now undeniable, and if you think it will continue to stay high - there are several things you can do - but I will discuss two of them. One is to buy the US dollar because you think the Federal Reserve will have to raise interest rates to combat the inflation. And two is buy gold as a hedge just in case the Fed can’t or won’t keep the inflation under control. Of course when making either of these trades you have to consider that inflation might not stay high - and indeed the price of gold and the dollar could move for other reasons too.

 

Before I carry on - please tap your phone or click your mouse on the thumbs up button if you like this video. It’s really a big help to us. And many I say thank you for watching!

 

Let's switch gears to this week’s economic calendar highlights. One thought up front is that EUR/JPY could be a currency pair in focus this week because we have Q3 GDP data and October CPI data from both Japan & Europe. On the whole, economic growth and price growth are expected to remain much stronger in Europe than Japan but a pickup in inflation is expected in both regions. 

 

US retail sales will be one to watch to answer the question ‘Will sales slow because of rising prices?’ If things cost more, people tend to buy less of them, right? That’s one reason why inflation is bad news for economies. I’ll be watching to see if a weak number here causes another drop in risky assets like stocks, and perhaps boosts gold. Why gold? Because if the consumer is pulling back - that’d be a bad time for the Fed to start hiking rates.

 

And just lastly I’ll highlight UK CPI because that could be a bit of an egg-on-face moment for the Bank of England if inflation jumps after they just decided not to raise rates when it was expected they would.

 

Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.