Crypto, Dollar and Gold Triad

Hello Traders, we hope you’re having a nice weekend. Here are some of the biggest stories this week:

• US inflation picked up slightly last month.
• China’s trade surplus is on track to hit a fresh record this year.
• Post-election euphoria pushed bitcoin past the $90,000 mark for the first time.
• Gold demand reached a record high last quarter.
• The US dollar hit its strongest level in two years.

Dig deeper into these stories in this week’s review.

US

Consumer prices in the US were 2.6% higher this October than last – a small increase from September’s 2.4% pace but in line with what economists were forecasting. Meanwhile, core inflation, which excludes volatile food and energy items to give a better idea of underlying price pressures, stubbornly held steady at 3.3%.

The readings took inflation further away from the Fed’s 2% target and could complicate the bank’s monetary policy strategy going forward, especially with a new administration taking over the White House in January. The president-elect has pledged to enact sweeping tariffs, deport immigrants, and lower taxes. Economists warn that these policies could stoke price pressures, potentially pushing the Fed to slow its interest rate cuts or even increase borrowing costs to address the flare-up. In fact, to see how much market expectations for rate cuts have shifted since the election, consider this: traders now anticipate rates will be 0.7 percentage points lower by the end of 2025. Just a month ago, they were expecting more than twice that.

China

China’s trade surplus – the difference between its exports and imports of goods – soared to $785 billion in the first 10 months of the year. That’s the highest on record for the period, and represents an increase of around 16% from 2023. And, if the trade surplus continues to widen at that same pace, then it’s set to reach almost $1 trillion for the full year, according to new calculations by Bloomberg this week. That would set a new annual record, and comes despite falling Chinese export prices, highlighting a huge rise in export volumes this year. And while the US and Europe have been the most vocal about the surge, the truth is that the trade imbalance extends beyond just those two regions. Case in point: China now exports more goods to almost 170 countries and economies than it buys from them – the most since 2021.

China’s growing exports this year were no accident. See, consumer spending in the country has been sluggish, weighed down by low confidence and a persistent real estate crisis that has eroded household wealth. To help offset the slump in domestic demand, authorities have encouraged more output from the country’s manufacturing sector, leading to stronger exports – and a wave of accusations about overproduction and dumping from China’s trading partners.

Unsurprisingly, those trading partners are now threatening hefty tariffs on Chinese goods, which would not spell good news for the world’s second-biggest economy. More specifically, the US president-elect is threatening to impose a 60% tariff on all goods coming from China. And should that happen, Chinese economic growth could suffer a hit of as much as two percentage points, according to recent analysis by Standard Chartered and Macquarie. That would make authorities’ official growth target of “around 5%” look like a pipe dream…

Crypto

Last week’s US election outcome sparked some big market moves, with stocks, the dollar, and bond yields all jumping, as investors bet on the president-elect’s talk about tax cuts, tariffs, and deregulation. But one particular asset has stolen the spotlight: bitcoin. The world’s biggest cryptocurrency is up by almost 30% since the election, breaking past the $90,000 mark for the first time ever on Wednesday. Traders’ excitement stems from the president-elect’s pro-crypto stance and the expectation of a more favorable regulatory environment under the incoming administration.

The current mood toward crypto can only be described as euphoric, with many traders betting that the rally in bitcoin still has room to run. However, as always with investing, it’s always worth being a little cautious when others are extremely optimistic. And traders might want to remember that the president-elect, while currently pro-crypto, has a history of shifting stances, and even called bitcoin a “scam” during his first presidential term…

Gold

Another week, another record for gold – but this time, it’s not about the metal’s price. A new report by the World Gold Council showed that global gold purchases increased by 5% last quarter compared to the same period last year, hitting a record 1,313 metric tons. Coupled with surging prices, the value of global demand surpassed $100 billion last quarter for the first time. This growth was driven by stronger investment flows from the West that helped offset waning appetite from Asia, according to the World Gold Council. See, family offices and wealthy individuals in the West have been buying more gold in recent months due to concerns about government debt levels, particularly in the US. In fact, total gold demand for investment purposes more than doubled in the third quarter, reaching 364 metric tons.

The strong demand has helped take gold’s year-to-date gain to over 30%. The metal, which touched a record high of $2,790 an ounce last week, has posted gains every month this year, except for a slight dip in January and a flat performance in June. And the constant headlines about its performance have led to significant FOMO (fear of missing out) buying behavior from investors, according to the World Gold Council. This FOMO has meant that falls in the price of gold have been shorter and shallower than normal, as investors rush to buy the metal when prices soften.

FX

The Bloomberg Dollar Spot Index rose to its highest level since November 2022 this week, with traders betting that Trump’s trade policies will boost the greenback and weigh on major currencies. See, the president-elect has proposed a 10% minimum tariff on all imports and a 60% tax on all goods coming from China. That would have three big implications for the dollar – all of which would likely see it strengthen.

First, they would curb imports, resulting in fewer dollars “sold” to purchase foreign goods, which would bolster the currency over time. Second, they could push the Fed to slow its interest rate cuts or even increase borrowing costs to address rising inflation, resulting in "higher for longer" rates that would boost the dollar by making it more attractive to foreign investors and savers. Third, they could set off a sprawling, damaging trade war, ramping up safe-haven demand for the greenback.

Next week

• Monday: China foreign direct investment (October), eurozone trade balance (September).
• Tuesday: US housing starts and permits (October). Earnings: Walmart, Medtronic.
• Wednesday: China one-year loan prime rate announcement, Japan trade balance (October), UK inflation (October). Earnings: Nvidia, Palo Alto Networks.
• Thursday: Eurozone consumer confidence (November). Earnings: Baidu, Intuit, Deere & Co.
• Friday: Japan inflation (October), UK retail sales (October), UK consumer confidence (November), US, UK, and eurozone PMIs (November).