Inflation Continues To Surprise, Gold Briefly Shines
Capital.com | Feb 14, 2022 10:25AM ET
As the year of the tiger is underway, it seems apt to drop in the expression “may you live in interesting times” to describe markets at the moment. We have certainly had some interesting times so far this year, and it’s not even the end of February.
Whereas in 2022, stock markets steadily ground higher, with investors more than happy to buy the occasional dip, this year continues to be somewhat more challenging so far. The latest US inflation number released last week was interesting. The cost of living in the USA, as measured by the consumer price index, is 7.5% on an annual basis. This has been the fastest annual rise in 40 years and was ahead of analyst forecasts.
The inflation data was something of a surprise to traders, erasing a couple of days of gains in stock markets and seeing a jump in volatility in foreign exchange and bonds. We all knew that inflation was the hot topic coming into this year, but as the numbers continue to surprise, it’s fair to say that investors are still undecided about what this may mean for many markets in the months to come. Following last week’s data, some traders now believe that the next interest rate decision due in March from the Federal Reserve may have to be larger than expected as inflation remains persistently higher than many anticipated.
With all of the inflation uncertainty, gold briefly nudged above $1,840 an ounce to be positive for the year so far. Inflation and gold provide an interesting problem for many investors. On the one hand, precious metals are commonly seen as the classic hedge against rising prices - historically, a safer destination in times of uncertainty.
But if the US Federal Reserve were to take a much more aggressive approach to raise rates, then that would traditionally be good for the dollar. And a rising dollar usually puts pressure on gold. Quite who will win in this tug of war remains to be seen - but after what may be considered a dull 2021 for the yellow metal, gold could be one to watch in the year ahead.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.