The Consumer Price Index Core in Canada decreased from 2.9% to 2.8% year-on-year in December. This change suggests a marginal slowdown in inflationary pressure within the country.
Gold neared a record price of $4,700 per troy ounce as fears of a US-EU trade war drove demand for haven assets. Investors are cautious following President Trump’s threats to impose tariffs on European countries.
Meme Coins Decline
Meme coins like Dogecoin, Shiba Inu, and Pepe experienced a decline, dropping around 3% on Monday. These digital currencies are now trading below their key moving averages and may seek immediate support.
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Escalating Trade War And Market Volatility
With escalating trade war rhetoric between the US and EU, markets are clearly shifting into a risk-off mode. We are seeing capital flow out of equities and into traditional safe havens. This is evident from gold surging to record highs near $4,700 while the Dow Jones Industrial Average declines.
This environment is creating significant market volatility, which derivative traders can use. We saw the VIX, a key measure of expected stock market volatility, spike over 40% during similar trade escalations in 2025. Given the current uncertainty, buying options to play future swings, such as straddles on the SPX, could be more effective than trying to pick a firm direction for equities.
The US Dollar is weakening broadly as the source of the geopolitical tension, lifting currencies like the Euro and Canadian Dollar. The EUR/USD pair is already pushing towards 1.1650, a level not seen in over a year. Traders could look at buying call options on the Euro or selling futures on the US Dollar Index to follow this trend.
However, the latest Canadian inflation data adds a layer of complexity. The drop in core CPI to 2.8% means the Bank of Canada is now under less pressure to raise interest rates. Overnight index swaps are already pricing in a reduced probability of a rate hike in the first quarter, which may cap the Canadian dollar’s strength against currencies other than the US dollar.
Gold remains the clearest directional trade, acting as the primary hedge against geopolitical risk. This rally has far surpassed the momentum we saw when prices broke past $2,500 back in 2024. Using call options on gold futures or related ETFs provides a capital-efficient way to maintain upside exposure as long as trade tensions remain elevated.
