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February flurry: Gold, stocks and the dollar are doing something very unusual

Gold and the S&P 500 are rising this month even in the face of a rising dollar, an exceptionally rare occurrence.

While the month is only half over, it is interesting to note that stocks, bullion and the dollar index are seeing simultaneous 1 percent rises in February, which is something they have only done in two prior months in the past 10 years (those being March 2013 and February 2010).

Often, a strong dollar is bearish for gold and the S&P. Indeed, over the past five years, gold has fallen an average of 2.2 percent in months when the dollar index is up by a percentage point or more, and the S&P has fallen by 1.4 percent.

Yet it would appear that the dollar on one hand, and gold and the S&P on the other, are currently being driven by distinct, if related, catalysts.

A year ago, market expectations were for annual inflation of about 1 percent over the next five years; now investors expect to see an inflation rate of about 1.9 percent. And it's not just expectations: The annual inflation rate rose to a five-year high of 2.5 percent over the past year, according to the most recent data.

This inflation jump opens the door for the Fed to raise rates more quickly than previously expected, which gives the dollar a boost (since higher yields mean greater returns for those holding greenbacks).

Meanwhile, rising inflation drives investor interest in gold, which is often viewed as a "store of value" that maintains its buying power in the face of rising prices.

Stocks, too, generally rise alongside inflation, given that most companies can pass those price hikes along to their customers. In addition, the economic improvement that rising inflation heralds is naturally good news for corporate America.

This is the rare environment, then, in which the same catalyst — rising inflation — leads to a rise in gold, a rise in stocks and somewhat counter-intuitively, a rise in the value of the dollar itself.

The macro market moves are "expressing that something is fundamentally changing in the economy," Kevin Caron, a portfolio manager with Washington Crossing Advisors, commented Tuesday on CNBC's "Trading Nation." The increase in actual and expected inflation "is playing out perfectly across all of the markets."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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