“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Thursday, June 19, 2014

Gold vs. Goldman Sachs Commodity Index

Just some FYI stuff for guys and gals that enjoy looking at other markets when trying to interpret the moves in the gold price.



Notice how the peaks and valleys in the gold price have been tracking the broader commodity sector fairly closely.

I should note that this particular commodity index does have a fairly excessive weighting in the energy complex ( well over 60%) so it stands to reason that movements in the crude oil, brent, gasoline, heating oil markets are going to exert a greater influence on this index than movements in the grains or the softs or the livestock markets, etc.

Even at that however, the link between the gold price and this index is fairly significant.

Here is another look at the same index, this time comparing it to the Dollar Index.


It is interesting to note that the overall commodity index tends to follow more of an inverse relationship to the Dollar, falling when the Dollar rises and rising when the Dollar falls. There are some periods however when the two seemed to actually move in sync, so the relationship is not perfect by any means. What I take away from this chart is that the norm is more of an inverse however.

It does look like since February of this year, that inverse relationship has been fairly tight however.

I come away from these charts believing that the relationships we have been watching for years now over here at this site are still worthwhile to monitor. If the Dollar is weaker, we should look, generally speaking, for the commodity indices to show some upward movement. If the Dollar is stronger, we should expect the opposite.

Then, if the commodity index is moving higher, gold should tend to track along with it. The opposite remains true.

We come back to that pesky Dollar thing again, no matter how we try to get away from it!


3 comments:

  1. Trader Dan,
    Thank you for your insights. I enjoy reading your blog and appreciate the fact that you would take time to share your knowledge.

    Please know that I am surprised by the parabolic move in gold and miners too. My surprise is more on the ignorance side because I have only been trading gold/miners for about one year.

    However, I wanted to pose a question. On Tues 6/17/14, flag pattern scans showed 58 bull flags. About ½ were gold/miners. Specifically: ag, agi, anv, auq, auy baa, ego, exk, fnv, fsm, gdx, gdxj, gg, gold, gss, iag, jnug, kgc, ng, ngd, nugt, paas, riom, and vgz. Two bear flags were the inverse ETFs: dust & jdst.

    A flag pattern takes a few days to consolidate/form. So, most of these patterns started forming on last Thurs 6/12/14. Most of these gold/miner flags broke out on 6/18 and went parabolic on 6/19. Today I am sure earth is again there final destination! Since the pattern actually started forming last week, isn’t it possible something else is going on other than Janet Yellen? The volume was amazing yesterday. But the MACD crossed last week too? Just want your opinion on these flags if you have one. I feel like there has to be more behind the move than just Janet.

    Respectively,
    Merry

    ReplyDelete
  2. A correction is coming in the stock markets very soon and the smart money is looking for cover and to buy value. Just my opinion but it makes sense to me as the gold miners were very good value. The low volatility that Dan pointed out is worrying for stocks and the fact that individual investor investment is almost back to 2007 levels (in the UK) is also a big sign that we are due a correction.

    ReplyDelete
    Replies
    1. You sound like the talking heads waiting for that correction after every advance. Its already corrected recently and aiming squarely at smashing 17k

      Delete

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