Giles Coghlan LLB, Lth, MA
Financial Source
After the surprise CPI data from the US last week there are growing concerns about rising inflation. These fears increased with the University of Michigan consumer sentiment print on Friday. The US University of Michigan May prelim consumer sentiment was a big miss at 82.8 vs 90.0 expected. The 1 year inflation expectations rose to 4.6% vs 3.5% expected. The rise in CPI will trouble the Federal Reserve. In simple terms when prices rise cash has less value. The more inflation rises, the more prices rise, the less value cash has. One solution for investors may be to buy gold. However, as soon as the Fed announce bond tapering then gold will fall.
Is now the perfect time to buy gold?
Key Trade Risks: If the Federal Reserve announce bond tapering then gold prices should fall.
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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