Is inflation really over?

Andrew Giovinazzi

BY ANDREW GIOVINAZZI

October 18, 2024

Yo Pit Crazies,

Just recently oil jumped from the $70 range as traders surveyed the Middle East landscape and decided Israel is going to retaliate by taking out the oil assets of Iran. Lucky for Iran they have not yet and instead took out the leader of Hamas.

Below is a chart of the US Oil Trust (Ticker: USO) which tracks the prices of crude oil. It recently spiked and ran near $80 and implied volatility, the bottom chart spiked too.

USO 1 year chart with 30 and 60 day IV

Right now oil is moving back down and today prices for volatility got a bit softer. Using indicators are extremely helpful in trying to create trades. It appears the big spike in oil is done.

Here is another commodity indicator that is making waves

Gold is mooning after the Fed cut rates

I am going to sound like Bill Griffo here, but the Fed cut rates too much. The bigger reason for inflation now is US Government spending is out of control. The COVID crisis gave politicians a taste of unlimited spending and they have not given it up.

Below here is a chart of the Gold Trust (Ticker: GLD) and it continues to rally. Also not that the short term IVs have stayed up, they have not crashed on the GLD rally. That usually means investors are still buying GLD.

1 year GLD chart with 30 and 60 day IVs on the bottom

What is clear is stocks in the USA can go up in an inflationary environment as long as interest rates respond and companies can get pricing signals. The recent inflation reports still are showing upticks in inflation, even if the rate is not as high as last year, but rates are creeping back up. The USA is late releasing budget and deficit information just into the elections. You would think with all the money they spend, government officials like Tres Sec Janet Yellen could post the numbers on time.

Gold is a good one to watch and for now I see no reason for it to retreat at least into the election. Might be a good one for end of day action too.