It’s Getting Hot in Here

The most recent economic data released today clearly indicates that as the economy grows inflation is heating up. The consumer price index for January had its most significant increase in five months. Year on year, the consumer price index is up 2.1%.

Add to that the recent upticks in wage growth and the data clearly suggests that inflation has increased. The data also indicates that any apprehensions that the Federal Reserve would quicken its pace in interest rates hikes have reemerged and intensified.

Today’s data sent the financial markets into a tailspin with the initial knee-jerk reaction to the report sending the Dow Jones Industrial Average down 120 points. As cooler minds prevailed and traders focused on solid economic data and robust corporate earnings, U.S. equities reversed. As of 3:00 PM Eastern standard time, with one hour left in trading, the Dow Jones Industrial Average is currently trading up almost 240 points on the day.

The same knee-jerk reaction and subsequence price reversal were quite evident in the precious metals markets. Gold (April futures) had been moving up steadily throughout the evening session in overseas trading, taking prices to a high of $1340. Prices had softened slightly to approximately 1335 just prior to the release of January’s CPI numbers.

The initial reaction to the report drove gold sharply lower. Within the time span of 10 minutes, prices had dropped from $1332 to $1319, and then abruptly reversing to $1325. What would follow would be one of the more dynamic short-term price recoveries witnessed by gold traders this year.

Gold futures are up $27 (+2.03%) today to be currently fixed at $1357.40, just off the intraday high of $1358.60.

Most impressive was the fact that today’s upside spike was primarily the result of buyers bidding up gold pricing. According to the Kitco Gold Index (KGX), spot gold as of 3:50 PM Eastern standard time was up $24.60. While a dollar weakness was a substantial contributor resulting in $8.80 of today’s move, buying accounted for the remaining $15.80.

The fact of the matter is that today’s CPI report clearly indicated that inflation is heating up. With recent volatility in U.S. equities and surging gold prices, as far as the financial markets are concerned, it would be fair to say that ‘It’s getting hot in here.’

Wishing you as always, good trading,