The new year started with a blast, as protesters took the U.S. Capitol in a move that stunned America and the world. Financial markets were not even fully functional as most investment managers were still on holiday when the assault happened, but it remains the key event at the start of the trading year. 

Since then, things have cooled down a bit. President Trump recognized the defeat, and tomorrow Joe Biden is expected to give his first speech as the new President of the United States. No changes in monetary policy so far, and all the economic releases of 2021 referred to the last month of the previous year.

What are the winners and losers so far in the trading year? The information is important because the way financial assets perform at the start of the trading year offer an educated guess about investment houses’ positioning.

Gold and Silver Underperforming

Gold and silver led the precious metals lower. After gold made a new all-time high in 2020, it reversed from above $2,000 and was not able to regain the level anymore. Silver followed closely, and the trend lower continued at the start of the trading year.

Or, is it the dollar that got stronger? Not so much, although the Bloomberg Dollar Index shows a positive performance for the greenback lately.

The big surprise so far in the trading year comes from the commodities market. Corn leads the way, with prices rising over 10% in less than two weeks. It is just a continuation of last year’s trend, as corn prices are now up 61% from last year’s lows, and so is the price of wheat – up 37% from its low. Why are food prices soaring?

Oil is up too. The WTI crude oil price is up 9%, and that puts pressure on energy prices too. What are higher food and energy prices indicative of? Hint – inflation.

The problem with inflation is that most consumer basket indices that the central banks use exclude such items as food or energy prices. However, humankind cannot survive without food and definitely depends on transportation to make ends meet in the 21st century.

If the trends seen in the first two weeks of the trading year remain intact in the months ahead, we may see further pressure on the dollar as inflation picks up steam. On the other hand, precious metals indicate the opposite – hence, caution is needed while monitoring the developments on the energy and grain sectors.