Gold's been on a tear - no news there. Prior to last month's Jobs Report, the "macroscape" was one awash in fear of a global recession and deflation - including the US. Markets were taunting the BOJ, equities were tanking, oil couldn't find support and the dollar was being sold. All the while, gold continued its march higher. Why?
The headline February Jobs Report handily missed expectations, but the important data showed a lurch higher in wage inflation. CPI has continued to run hot and with oil up +30% since then, I believe the market is underpricing the risk of rate hikes. So is this rally in gold due to anomalous US inflation fears? If so, we'd expect to see those fears priced into dollar, Fed Funds, TIPS, and Treasury markets. All of which appear to reflect expectations for global deflation.
That said, tomorrow we'll get another chance to test that hypothesis. I expect wage inflation to continue to run hot. I'll be looking to get long gold around 1240 with a target of 1300 via April 1300 calls.
The headline February Jobs Report handily missed expectations, but the important data showed a lurch higher in wage inflation. CPI has continued to run hot and with oil up +30% since then, I believe the market is underpricing the risk of rate hikes. So is this rally in gold due to anomalous US inflation fears? If so, we'd expect to see those fears priced into dollar, Fed Funds, TIPS, and Treasury markets. All of which appear to reflect expectations for global deflation.
That said, tomorrow we'll get another chance to test that hypothesis. I expect wage inflation to continue to run hot. I'll be looking to get long gold around 1240 with a target of 1300 via April 1300 calls.