It was another "hot" week in commodities, with the highest CPI reading since July 2008, at 5.4% annually. Food inflation rose to 4.5%, the highest reading since 2011 and showing no signs of slowing down. I cannot stress how important it is to have a "real asset" basket in your investment portfolio. Many of you choose Gold and Silver as your tangible assets to combat inflation (I have some too); however, I suggest broadening those pure price plays across several markets. Running down the numbers on the week Copper +10%, on the month Gasoline +12%, Platinum +12% and looking at the "Fear Gauge" the VIX is -25%, ultimately throwing caution to the wind.
After eight straight weeks of gains, Crude Oil futures reached a new cycle high at $82.88. For those of you that have never traded energy futures, we created the Energy Alpha program that has half the annualized volatility of the S&P 500 and looks to seek value in short and long-term fundamental expectations using a proprietary multifactor model. You can request the performance sheet and more information here: Get Energy Alpha
Daily Gold Chart
Monitoring the situation in Gold, we saw the IMF come out with a "Stagflation" announcement which boosted prices back up to $1800 oz. I had reiterated in many past articles that stagflation is the best economic environment for Gold and second Deflation, where it acts as an asset placeholder. The problem Gold is facing right now is the anticipation of a reduction in the loose monetary policy when the Fed begins to "taper." What the Fed is going to fail to realize is that the "transitory" inflation will remain much longer than anticipated. The demand destruction from higher prices will reduce growth, cap treasury yields, and create a floor under Gold prices. We have to play the waiting game of how high inflation needs to run before the Fed becomes caught. My anticipation is the earliest would be December but most likely the end of the first quarter. In the meantime, use corrections to add the 10 oz Micro Gold contracts incrementally at critical levels of support. If you have never traded futures or commodities, I just completed a new educational guide that answers all your questions on how to transfer your current investing skills into trading "real assets," such as the 10 oz Gold futures contract. You can request yours here: Trade Metals, Transition your Experience Book.
Chief Market Strategist
Blue Line Futures LLC
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