Gold and silver outperfomring

Benefitting from inflation fears

Chart of the Day

Gold and silver have been among the big winners of further inflation concerns this week, with both rising strongly although showing a bit of weakness at the time of writing in overnight markets. The issue for both metals is they could come under pressure if the Fed pushes back against the latest decline in real yields. With criticism about monetary policy growing louder by the day, that looks likely. While that’s a risk, both metals did well on Wednesday even as real yields ticked up a bit (US bond markets were closed yesterday for Veterans Day), so it could be investors are now getting on board as an inflation hedge, with less concern about real yields. We shall see…

Macro

UK GDP rose by 0.5% MoM in September, which left GDP 5.3% higher than a year earlier but still lower than it was before Covid hit.

Mexico's central bank rose its policy rate again yesterday, to 5.0%.

Last month, nine central banks raised interest rates while two cut rates. So far this month, five have raised rates while none has cut rates.

Markets

Copper is seeking direction, currently trading around its 50-day moving average.

There’s also no clear direction from the Nasdaq to Russell ratio, which has declined a bit lately but is still comfortably within the range it has settled in since the summer.

Implied bond and equity market volatility have been rising lately, partially due to inflation concerns.

While bond markets were closed yesterday, the US 5-yr/5-yr inflation swap ticked up. For the eurozone, it has now settled near 2% for the first time since 2014.

The euro has now broken down through its prior support level against the USD - it could head lower if the Fed pushes back against the latest decline in US real yields.

There has been a sharp drop in the key commodity currencies in recent weeks - maybe a sign inflationary pressures are close to a peak, at least when it comes to commodity prices.

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