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Could Inflation Be The Investment Theme Of 2018?

Summary:
Weekly Notes With Tiho — Issue 22Location: Saigon, VietnamObserving returns over the last half-decade, assets linked more closely towards deflationary trends have by and large outperformed.However, there are now some early signs that assets — which tend to benefit from global inflationary trends — might be poised for a strong run in the first half of 2018.Gold’s Strong ReversalGold endured a difficult autumn, as traders focused on the forthcoming December rate hike. However, immediately after the rate hike, Gold reversed the selling and began a sharp rally.Gold posted a classic outside monthly reversal at year-end, just as hedge funds started to aggressively cut their net longs. Gold also refused to fall below the 12-month moving average, what we here at The Atlas Investor call “the mean

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Weekly Notes With Tiho — Issue 22

Location: Saigon, Vietnam

Observing returns over the last half-decade, assets linked more closely towards deflationary trends have by and large outperformed.

However, there are now some early signs that assets — which tend to benefit from global inflationary trends — might be poised for a strong run in the first half of 2018.

Gold’s Strong Reversal

Gold endured a difficult autumn, as traders focused on the forthcoming December rate hike. However, immediately after the rate hike, Gold reversed the selling and began a sharp rally.

Gold posted a classic outside monthly reversal at year-end, just as hedge funds started to aggressively cut their net longs.

Could Inflation Be The Investment Theme Of 2018?

Gold also refused to fall below the 12-month moving average, what we here at The Atlas Investor call “the mean price.”

Gold’s correlation with Treasuries, which one should never rely on in the first place, is starting to break away as Gold (together with other commodities) sense inflation.

As the chart below indicates, Gold has been coiling within a long-term triangle formation that is getting ready to break. Will be keeping a close eye on this one.

Could Inflation Be The Investment Theme Of 2018?

Hedge Funds Shorting Aussie Dollar

As you might expect, with Gold performing better so too are various currencies around the world. Those of Emerging Markets to Commodity Exporter nations are rebounding strongly.

One example is the Aussie Dollar which posted one of the strongest Decembers in its history.

Despite the rebound in the currency, hedge funds continue to remain short. This suggests recent strength could have staying power.

Could Inflation Be The Investment Theme Of 2018?

What is the Aussie discounting?

Inflation?

A rebound in commodity prices?

Great investors such as Jesse Livermore and Paul Tudor Jones used to say that price moves first and the reasoning or catalyst comes thereafter.

Short Duration Treasuries Under Pressure

Turning to the Bond market, we see that short-term rates continue to rise sharply while the long-term rates have remained around the same levels as a year ago.

The rise in short-term rates is putting pressure on intermediate duration nominal Treasury Bond Total Returns, as the Yield Curve continues to flatten.

Could Inflation Be The Investment Theme Of 2018?

Treasury Inflation Protection Securities — also known as TIPS — have underperformed since 2013, but since 2016 have begun to outperform.

Upside surprises in inflation would pressure government bonds, apart from Inflation Linkers.  Keep your eye on TIPS as the market, like Gold, is coiling for a potential breakout.

Could Inflation Be The Investment Theme Of 2018?

Could Inflation Be One Of The 2018 Themes?

Inflation assets have been in a correction or consolidation since a strong first half of 2016, which followed several years of dramatic, poor performance.

Two of those assets, Gold & TIPS, are coiling for a potential big move.

Will inflation surprise on the upside this year?

Where are the risks and how should one position ahead of potential developments?

If you would like to know how I am positioning my client’s portfolios and how we are preparing for 2018 with our asset allocation strategy — get in contact by clicking below and filling out the brief survey. I’ll get back to you within 24 hours.

Tiho Brkan
I am male in my early 30s. I was originally born in Croatia, but am an Australian citizen, while currently living in Hong Kong. I hold a business degree with focus on accounting, finance and marketing.

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