The CPI components suggest that inflation’s glide path through the “final mile” will remain sticky. Services less energy services rose 0.4% in January and are up 2.9% year-over-year. Shelter increased 0.2% on the month and 3.0% over the past year. Medical care services rose 0.3% in January and are up 3.9% year-over-year. These service categories continue to keep core inflation above the Fed’s target.

Progress is real. The chart below shows core CPI has finally taken an incremental step to a lower inflationary regime. Yet the path lower remains gradual and sticky.

The Tariff Effect on Core Goods

The CPI for commodities less food and energy commodities increased 1.1% year-over-year and remains a key contributor to overall disinflation. This category could contribute to even lower inflation this year if the U.S. avoids enacting new tariffs.

In Liberty Street Economics, the New York Federal Reserve published a quick study that demonstrates a tariff incidence of roughly “94 percent” in the first eight months of 2025 and “86 percent” by November, meaning the vast majority of tariff costs showed up in import prices paid by U.S. consumers. The average tariff rate rose to about 13 percent, and tariffed goods experienced price increases of roughly 11 percent relative to comparable untariffed goods. Fed Chair Jerome Powell noted at the January press conference on monetary policy that inflation could be closer to target absent tariff effects. This study provides supporting data.

However, from a policy of economic warfare, tariffs have likely achieved a primary aim: a significant reduction in imports from China. The study pointed out that “in the first eleven months of 2025, China’s share of U.S. imports fell by another 5 percentage points, slipping below 10 percent”. Chinese imports accounted for nearly 25% of U.S. imports in 2017 and declined to around 15% in 2024 following the tariff increases implemented in 2018 and 2019.

The inflationary consequences of tariffs could be secondary to this strategic goal. Importers have shifted supply chains to blunt the otherwise inflationary impact of the higher tariffs. The general disinflationary environment during the first round of tariffs also likely helped embolden today’s heightened tariff regimes.

The strategic objective may be clear. The inflationary implications are less so.

Are Tariffs an Enduring Inflationary Force?

The New York Fed study does not argue that tariffs create a self-sustaining inflation spiral. It documents substantial pass-through into prices during 2025. If no new tariffs are enacted, year-over-year comparisons will eventually absorb this price shock. Base effects alone would allow the tariff impulse to fade.

However, continued or expanded tariffs would introduce new price-level increases. Repeated rounds would transform a one-time adjustment into recurring upward pressure on core goods. Ongoing uncertainty around tariff policy remains a significant wildcard. Persistent uncertainty could encourage firms to raise prices preemptively in anticipation of future cost increases.

Reluctant Disinflation

Disinflation is underway, but the path for the final mile to 2% remains sticky. This phase can best be described as reluctant disinflation, the mirror image of sticky inflation.

The bond market remains broadly unconcerned about renewed inflationary pressure. Bond prices rose following the CPI release. After gaining 1.3% ahead of the report amid rising equity volatility, the iShares 20+ Year Treasury Bond ETF (TLT) added another 0.5% after the data. With TLT trading well above its upper Bollinger Band – a signal of short-term extension – I took profits on a large TLT position.

In recent weeks, I have shifted toward buying dips and selling rallies in TLT rather than fading strength. As long as the bond market remains confident that inflation will continue moderating, my inflation hedge remains concentrated in commodities as the U.S. in particular positions itself to run the economy hot with lower interest rates, high investment, and fiscal stimulus.

Be careful out there!

The post Core Inflation Softens, but the Final Mile to 2% Remains Sticky appeared first on Inflation Watch.

I faded the move in bonds as nothing about the December CPI print changed the fundamental narrative of sticky inflation and a cautious Fed or even the prospect of soaring U.S. budget deficits. I speculated on weekly SPY put options as a hedge. I fully acknowledge that the stock market has spent a year and a half or more adjusting to every hiccup and bout of angst over the inflation narrative.

The chart below demonstrates that the eye must strain hard to see a change in the profile of core CPI. We will have to wait until later this month to see whether the softer than expected core CPI also bends core PCE off its uptrend from its last trough.

Sources: U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [PCEPILFE], retrieved from FRED, Federal Reserve Bank of St. Louis; U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis; January 15, 2025.

The volatility index (VIX) well represented the stock market’s huge sigh of relief over inflation. The VIX plunged 13.9% and brought an end to the most recent uptrend.

Shelter Inflation Continues Trending Down

Shelter inflation, along with services inflation, has been a key culprit in stubbornly sticky inflation. The National Association of Home Builders (NAHB) pointed out that “the year-over-year change in the shelter index remained below 5% for a fourth straight month and posted its lowest annual gain since January 2022, suggesting a continued moderation in housing inflation.” Shelter inflation has even been on a definitive downtrend since peaking in March, 2023. Unfortunately, the current trajectory may be too slow for comfort in terms of its impact on aggregate core CPI.

Shelter inflation dropped from 7.5% in December, 2022 to 6.2% in December, 2023 and now 4.6% last December. If this nearly linear pace continues, shelter inflation will be around 3.2% next December, right around where core CPI currently sits. Thus, other components will still need to do some heavy-lifting in coming months to meaningfully push core CPI, and presumably core PCE, closer to the Fed’s 2.0% target.

Source: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Shelter in U.S. City Average [CUSR0000SAH1], retrieved from FRED, Federal Reserve Bank of St. Louis; January 16, 2025

An Oil Breakout

Oil prices are not part of the core CPI, but its recent breakout has caught my attention. A continued, persistent rise in oil prices could bleed into higher inflation expectations for consumers. Such a dynamic may further motivate the Federal Reserve to sit on its hands with monetary policy. A 3.3% gain in the United States Oil Fund (USO) sent the ETF to a 2 1/2 year high.

A Spike In Short-Term Inflation Expectations?

Every month, the New York Federal Reserve publishes a survey of consumer expectations. This survey includes various measures of inflation expectations. The 1-year median expected inflation rate for consumers stayed around 3.0% for all of 2024, consistent with the narrative of sticky inflation. However, a potentially interesting blip happened in December where the median point prediction jumped from 3.0% to 3.8%. The median point predictions are typically higher than the median expected inflation rate, but they rarely diverge and almost never by such a wide margin. The accompanying press release does not refer to this surprising 1-month behavior, but I cannot help speculating on its significance. I will be watching to see whether this point projection manages to lead the median expected inflation rate higher or whether it snaps back to the typical relationship. Either way, such a jump is surely not positive for inflation in the near-term.

The Trade

I continue to maintain a strategy of fading rallies in TLT. Going into the CPI I owned a single February TLT $85 put option “just in case” CPI produced a fresh upside surprise in inflation. Now I can accumulate TLT put options at more attractive prices. TLT’s rally stopped just short of resistance at the 20-day moving average (DMA) (the dotted line below). A breakout from there will set up even more attractive prices on a test of converging resistance between the downtrending 50DMA (the red line) and the bottom of the former trading range (the thick black line).

Be careful out there!

Full disclosure: long TLT put options, long SPY put options

The post A Fresh Opportunity to Fade Bonds As A Marginal Change in Inflation Ignites A Near Oversold Market appeared first on Inflation Watch.

The stock market woke up the next day after the Producer Price Index (PPI) came in hot and suggested once again that underlying price pressures in the economy continue to increase. The S&P 500 gapped down and lost 0.5%. More importantly, TLT lost another 1.2% and confirmed a breakdown below its 50-day moving average (DMA). The core PPI, Final Demand Less Foods and Energy, has trended upwards all year and is now at its highest level since February, 2023 at 3.5%.

Source: U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Final Demand: Final Demand Less Foods and Energy [PPIFES], retrieved from FRED, Federal Reserve Bank of St. Louis, December 12, 2024.

Assuming the Federal Reserve cuts rates next week as expected, I am guessing rate cuts will slow to a crawl if not come to an outright halt for the beginning of 2025. Accordingly, the Fed’s communications to the market will get about as tricky as ever. Fortunately for the bulls the market’s momentum carries a large amount of buffer from current Animal Spirits.

iShares 20+ Year Treasury Bond (TLT)

The fascinating contrast between stubbornly stable inflation and Fed rate cuts continues to keep me fading rallies in TLT. TLT’s earlier breakout above its 50DMA (the red line below) almost fooled me. TLT is now closing the gap up created by Trump’s pick to head the U.S. Treasury department, Scott Bessent. Assuming that gap closes, a true test of the bottom of the presumed trading range should finally unfold.

Gold

While TLT delivered, gold disappointed. I have a live short-term trade in PHYS and call spreads and call options in SPDR Gold Trust (GLD) that orbits my core long-term position in GLD shares. I was encouraged by GLD’s reaction to the CPI and just assumed the rally would continue into at least the end of this week. Instead, GLD reversed right back to 50DMA support. I do not have a ready hypothesis to explain this seemingly contrarian move. (I would love to hear yours!)

What Happens If the Fed Gets “Hawkish”

The Fed is currently dovish. It would not take much for the Fed to sound hawkish. A firm follow-up to the round of Fedspeak attempting to walk back market expectations for rates cuts could set off the alarm bells for the market. At that point, the short-term GLD trade gets less attractive. TLT will probably still be good for fades. The stock market will likely stall for at least the rest of the Santa rally season….just enough time to find the next reason to reinflate Animal Spirits.

The big wildcard for me in a “more hawkish Fed” scenario is the U.S. dollar. There are multiple countervailing catalysts that make the U.S. dollar attractive and unattractive. Thus, it is hard to develop conviction beyond the short-term technicals. Right now, I still like fading the euro against the U.S. dollar. At the same time, I finally gave up trying to catch a pullback in USD/CAD, a strengthening in the Canadian dollar (Invesco CurrencyShares Canadian Dollar Trust (FXC)). I am now playing the major breakout to the long side. USD/CAD is practically making a beeline to test a critical long-term double-top spanning 2016 and 2020.

Be careful out there!

Full disclosure: long USD/CAD, short EUR/USD: long GLD shares, calls, and call spread; long PHYS, long TLT puts

The post Bonds Try to Weigh on A Market Trying Harder to Look Past Stabilizing Inflation appeared first on Inflation Watch.

Sources: U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [PCEPILFE], retrieved from FRED, Federal Reserve Bank of St. Louis. U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis, November 27, 2024.

October’s core PCE, PCE excluding food and energy, came in at 2.8% in October, up from 2.7% in September. Core PCE was last higher in April at 2.9%. Sticky service inflation is a key driver of the current stabilization. While prices for goods decreased 1.0%, prices for services increased 3.9%. Services expenditures increased across each sub-category: housing and utilities, health care, transportation services, recreation services, food services and accommodations, financial services and insurance, and other services. This broad-based strength is indicative of a strong economy where consumer spending remains robust. This robustness also presents a key challenge for the Fed as it seeks to “recalibrate” monetary policy by cutting rates. Even if the job market needs the relief, the (services) economy clearly does not need the rate cut relief at this juncture.

Interestingly, long-term yields decreased in the wake of the hot PCE news. The iShares 20+ Year Treasury Bond ETF (TLT) increased 0.7% (yields down) to a 1-month high. Given this move is inconsistent with a stabilizing, and perhaps now an increasing inflation rate, I attribute TLT’s move to a continuation of the week’s relief rally. TLT gapped higher in relief after Trump selected hedge fund executive Scott Bessent to head the U.S. Treasury Department. Once the dust settles, I expect TLT to fail at or around resistance from its 50-day moving average (DMA) (the red line below) and head back toward the bottom of the current (presumed) trading range. TLT almost tested the bottom of the range after Trump was elected and then again after October CPI came in hot.

Full disclosure: long TLT put

The post Inflation Stabilization Firms with Robust Services Spending appeared first on Inflation Watch.

“A strategy of repeatedly lowering the fed funds target range toward a more neutral level relies on confidence that the neutral level is materially lower than where rates are now. When I look at the available evidence, though, I see substantial signs that the neutral rate has increased in recent years, and some hints that it could be very close to where the fed funds rate is now…ces. I anticipate the FOMC will most likely need more rate cuts to finish the journey. But it’s difficult to be sure how many cuts may be needed and how soon they may need to happen.” – Navigating in shallow waters: Monetary policy strategy in a better-balanced economy, Dallas Fed President Lorie K. Logan, November 13, 2024

“Shifting from my baseline to alternative scenarios, recent information suggests to me that the risk of inflation ceasing to converge toward 2%, or moving higher, has risen, while the risk of an unwelcome deterioration in the labor market has remained unchanged or possibly fallen.” – Musalem: Remarks on Monetary Policy and the U.S. Economic Outlook, St. Louis Fed President Alberto Musalem, November 13, 2024

“While now is the time to begin dialing back the restrictiveness of monetary policy, it remains to be seen how much further interest rates will decline or where they might eventually settle.” – Longer-term Considerations for Growth and Monetary Policy, Federal Reserve Bank of Kansas City President and Chief Executive Officer Jeff Schmid, November 13, 2024

All three speeches included Fedspeak for caution on the pace of rate cuts while maintaining the flexibility to follow the data. These speeches also came on the same day as the release of the October CPI data. This timely convergence of caution and circumspection is important because core CPI maintained the stabilization trend in place since a low in July (see the green line below). Meanwhile, core PCE, the Fed’s favorite indicator of inflation also looks like it is stabilizing. In other words, it seems the Fed is paying attention to stabilizing inflation patterns.

Sources: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis, November 13, 2024. U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [PCEPILFE], retrieved from FRED, Federal Reserve Bank of St. Louis, November 13, 2024.

Shelter costs continue to drive the bulk of inflation. For October, shelter costs constituted 65% of the year-over-year increase in the CPI. Housing costs are in a paradoxical juncture where monetary policy could help maintain elevated housing costs no matter where interest rates go. The National Assocation of Homebuilders (NAHB) laments that high interest rates contribute to contraints on supply thourgh an expensive and difficult financing environment for construction loans. On the other hand, looser monetary policy could reignite a housing demand that strains supply further and drives up prices. For now, a surprise rebound in mortgage rates is tamping down housing demand.

A Friendly Message from Gold?

While inflation is stabilizing, gold may have topped out.

Two months ago I interpreted the strength in gold as indicative of a skepticism about the Fed’s implied victory message on inflation. That trend persisted until last week. The resolution of the U.S. presidential election generated a fresh surge in Bitcoin (BTC/USD) and presumably drained interest in gold. The SPDR Gold Trust (GLD) gapped down and lost 3.0%. I was hopeful that the 50-day moving average (DMA) (the red line below) would hold as support. As a (perma) bull on gold, I added call options to supplement my core GLD position. Today’s 1.0% loss in GLD further confirmed a 50DMA breakdown. This bearish technical signal means that I am unlikely to try new short-term trades for a while.

Source for charts: TradingView.com

The new inverse correlation between gold and Bitcoin indicates a sharp shift in preferences with Bitcoin getting an added advantage from expectations of a pro-crypto regulatory regime starting next year.

The Bond Market Remains Wary

Two months ago I claimed that the bond market acted wary about the Fed’s presumed victory over inflation. Sure enough, long-term yields have steadily risen ever since. The iShares 20+ Year Treasury Bond ETF (TLT), which goes up when long-term interest rates go down, is now trading near the bottom of a presumed horizontal trading range. My strategy to fade TLT has worked all the way down.

After TLT gapped up for some reason on the CPI news, I thought I missed my latest profit opportunity. So when TLT faded back to the previous day’s close, I counted myself fortunate and took profits on my latest round of TLT put options. TLT then went on to lose 1.0% for the day.

The U.S. dollar soars

The U.S. dollar index (DXY) has benefited from one tailwind after another. Now, the presumed tailwind comes from the boost it should get with increased tariffs that also promise to prop up inflationary pressures in the economy. Fewer dollars going overseas to buy goods tips the supply/demand balance in favor of a stronger dollar. Two months ago I decided to bet on continues strength in the British pound versus the U.S. dollar by buying shares of Invesco CurrencyShares® British Pound Sterling Trust (FXB). I took the opportunity to buy when FXB tested its uptrending 50DMA. The currency ETF has continued downward from there with little sign of an imminent rebound.

Conclusion

With the Presidential election behind us, the bets on stabilizing (or even stronger) inflation are clarified for now: long Bitcoin, long gold only after Bitcoin enthusiasm wanes somehow, long U.S. dollar, and short TLT. While I sold all my Bitcoin earlier in the day, I will continue to trade by buying dips. I am conflicted on the U.S. dollar as I stubbornly hold some dollar shorts while trading in and out of dollar longs. At some point, I will commit to a dollar long by shorting EUR/USD. Europe stands to lose in the next administration with a weaker NATO, more contentious relationships, and higher tariffs in a weakening economic backdrop.

The Federal Reserve has ahead as precarious a path as ever while it gets increasingly wary about stabilizing inflation!

Full disclosure: long GLD shares and calls, long PHYS, long FXB

The post The Federal Reserve Is Paying Attention to Stabilizing Core Inflation appeared first on Inflation Watch.

Nevermind that a read hotter than consensus has little impact on the current trend. The chart below from the U.S. Bureau of Labor Statistics shows that even as core CPI (all items less food and energy) is flattening out a bit (the red line), the “sticky” shelter component of inflation is still hurtling downward (the purple line).

With the trend still favoring the death of inflation, I think of “sticky” as a reference to people’s impatience with an inflation component taking too long to converge with the overall average inflation level. The CPI report highlighted the relative stubbornness of shelter inflation:

“The shelter index increased 0.6 percent in January, and was the largest factor in the monthly increase in the index for all items less food and energy. The index for owners’ equivalent rent rose 0.6 percent over the month, while the index for rent increased 0.4 percent. The lodging away from home index increased 1.8 percent in January…The shelter index increased 6.0 percent over the last year, accounting for over two thirds of the total 12-month increase in the all items less food and energy index.”

The bubble chart below from the U.S. Bureau of Labor Statistics shows the outsized influence of services less energy services on total inflation (the large purple bubble). This major component includes shelter. Its relative importance of 60.9 dwarfs the relative importance of all other major components of inflation.

Given the angst directed at the shelter component of inflation, I looked at what the National Association of Home Builders (NAHB) had to say about this CPI report. The industry group provided a reassuring conclusion: “the NAHB forecast expects to see shelter costs decline further in the coming months.  This is supported by real-time data from private data providers that indicate a cooling in rent growth.” So while the housing price picture is mixed with existing homes on the uptick and new homes on the downtick, overall rents should continue a cooling pace as expected.

Unfortunately for those traders and investors buying stocks and bonds in anticipation of rate cuts, this reminder of inflation’s stickiness pushed out expectations for the first rate cut from the Federal Reserve. Over-eager financial markets pushed out the first rate cut from May to June. This is a bitter pill to swallow for those who started buying stocks and bonds late last year in anticipation of a rate cut in March (because the Fed admitted to inflation’s death of course). The chart from the CME FedWatch Tool shows how the odds favoring a May rate cut immediately evaporated.

The Fizzle and Sizzle in Financial Markets

Interestingly, currency markets and the bond market have been moving counter to the rallies in the S&P 500 (SPY) and the NASDAQ (COMPX). The 2024 rally in the U.S. dollar index (DXY) has taken the index ABOVE the point where currency traders dumped the dollar in the wake of inflation’s death. The chart below from Tradingview.com shows a bullish breakout for the dollar last month above its 50-day moving average (DMA) (the red line) and a successful test of the trend line as support earlier this month.

The dollar’s rally complicates my bullish trades on the Canadian dollar but also provides my latest opportunity to fade USD/CAD (Invesco CurrencyShares Canadian Dollar Trust (FXC)) within the trading range. I am net long the U.S. dollar by being short EUR/USD (Invesco CurrencyShares Euro Currency Trust (FXE)).

Excluding a sharp countertrend rally at the end of January, iShares 20+ Year Treasury Bond ETF (TLT) has sold off most of 2024.

These trends further reinforce the notion and fear that perhaps earlier rate cut expectations were indeed premature. After the market’s pullback (the S&P 500 lost 1.4% and remains in an uptrend) will stocks also concede the point or will they return to ignoring deteriorating market breadth and other signs of caution in the stock market?

The volatility index (VIX) may have already blown off enough steam to soothe the groans of the bulls…for now. Note carefully how the VIX stopped going down this year and thus has an ever so slight uptrend going…

Be careful out there!

Full disclosure: net long U.S. dollar

The post From Inflation Fizzle to Sizzle appeared first on Inflation Watch.

SPDR Gold Shares (GLD) printed a technical topping pattern amid mixed inflation news, but it is trying to hold uptrending support at the 20-day moving average (DMA)

The Conundrum

The current inflationary cycle could be ending, at least in North America. For example, the Bank of Canada (BoC) showed inflation data with a steeply descending trend ending with a near perfect landing at the Bank’s 2% target in late 2024.

Here in the U.S. plenty of pundits have declared inflation a non-threat ever since the Federal Reserve finally got serious about it. Cathie Wood has been one popular critic of the Fed’s inflation concerns. The disbelievers received more confirming evidence when the latest producer price index told a disinflationary story. A slightly weaker than expected inflation reading from the March Producer Price Index (PPI) generated cheer in stocks given the implication for looser monetary policy. Since producer prices sit upstream from final goods prices, PPI can be a leading indicator of future prices.

Gold also celebrated the soft inflation numbers; GLD gained 1.4%. This reaction represents the upside of the golden inflation conundrum. Gold bugs suspect that the seeds of inflationary pressures remain well-grounded in the economy. I agree with them. A relaxed Fed is a potential catalyst for rewatering the garden of growing prices, especially if labor markets remain tight. Thus, the prospect of a relaxed Fed supports higher gold prices.

The downside of the golden inflation conundrum can come on stronger inflation signals because they support an aggressive, inflation-fighting Fed. GLD went into retreat in the wake of a surprising surge in consumer expectations for inflation next year from 3.6% in March to 4.6% in April. This reading from the University of Michigan’s surveys of consumers was last this high in November, 2022. Even if this move coincided with the jump in gas prices, surges in inflation expectations are sure to encourage the Fed to stay on message. As it happened, the market got a timely dose of messaging from Governor Christopher J. Waller the same day.

The Fed Stays On Message

In the wake of the economic data, Governor Christopher J. Waller spoke at the Graybar National Training Conference in San Antonio, Texas. Waller reiterated the all too familiar refrain “inflation remains much too high.” He provided the following cautionary assessment of inflation (emphasis mine):

“Inflation moderated in the second half of 2022, but that progress more or less stalled toward the end of the year…On April 12, we got consumer price index (CPI) inflation data for March, and it was another month of mixed news…Core inflation, which strips out food and energy prices, is a good guide to future inflation, and that measure came in at around 0.4 percent in March, which translates to an annual rate of 4.6 percent if it were to persist. It was the fourth month in a row with core inflation at 0.4 percent or higher. Since December of 2021, core inflation has basically moved sideways with no apparent downward movement. So, despite some encouraging news on a slowing in housing costs, core inflation does not show much improvement and remains far above our 2 percent inflation target.

Whether you measure inflation using the CPI or the Fed’s preferred measure of personal consumption expenditures, it is still much too high and so my job is not done. I interpret these data as indicating that we haven’t made much progress on our inflation goal, which leaves me at about the same place on the economic outlook that I was at the last FOMC meeting, and on the same path for monetary policy. Because financial conditions have not significantly tightened, the labor market continues to be strong and quite tight, and inflation is far above target, so monetary policy needs to be tightened further. How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions.”

With the Fed’s next decision on monetary policy just two weeks away, Waller’s words suggest that the Fed could raise rates yet again. The odds are low of getting a disinflationary signal strong enough to counter Waller’s observations. Thus, I think GLD will struggle to invalidate the technical topping pattern for the time-being.

The Trade

The golden inflation conundrum leaves GLD in a contrary place. In the short-term, GLD’s best chances lie with soft inflation numbers. Indeed, GLD bottomed shortly after the market bottomed in October when market participants concluded that inflation had finally peaked. Inflation’s peak does not equal the Fed’s inflation target; the Fed has gone to great lengths to issue these reminders. Yet, beyond day-to-day volatility, the market has overall chosen to fight the Fed’s hawkishness ever since October. Volatility is even back to levels last seen at the start of trading in 2022 despite the linger crisis in regional banking.

Where volatility is poorly positioned, GLD is well-positioned. From the looming battle over the U.S. debt ceiling to the prospect of the Fed standing down later this year to geo-political risks, there are enough reasons to stay bullish on GLD. I am back to trading around my core position. I took profits on half my call spreads last week. My remaining half is set to expire in September. I want plenty of runway for the gold-positive catalysts to work their way through the golden inflation conundrum.

Be careful out there!

Full disclosure: long GLD shares and call spread

The post A Golden Inflation Conundrum appeared first on Inflation Watch.