Gold & Stocks (excerpt)

Friday’s selloff in commodity prices was triggered by a disappointing retail sales report for the US. Monday’s plunge was triggered by weaker-than-expected GDP news out of China for the first quarter. In a phone conversation, one of our accounts concluded, “The market is discounting that there is no growth anywhere in the world.” I’m not so sure about that, but I do respect the relationship between the stock market and commodity prices.

Indeed, the CRB raw industrials spot price index is one of the three components of our Fundamental Stock Market Indicator (FSMI), which has been highly correlated with the S&P 500 since 2000. The recent rally in the S&P 500 to new record highs hasn’t been confirmed by our FSMI, which backed off from its cyclical high during the last week of March and first week of April.

The price of gold tends to follow the underlying trend in the more volatile CRB raw industrials index. So gold’s two-day free-fall of $203 per ounce to $1,360 is unsettling if investors see it as a harbinger of a widespread plunge in commodity prices resulting from a much weaker global economy. I don’t see it that way. Nevertheless, gold’s precipitous descent only one week after the Bank of Japan announced a massive QE program suggests that investors are losing their confidence in the power of central banks to stimulate economic growth. As a result, gold bugs may no longer be convinced that inflation will heat up, notwithstanding the monetary excesses of the central banks.

Today's Morning Briefing: Global Growth Scare. (1) No gold medal for the metal. (2) MEI sectors leading on the way down. (3) Emerging and submerging economies. (4) Has the global economy stopped growing? Of course not! (5) Is gold a leading indicator for anything? (6) Giving up on inflation. (7) China is still growing faster than any other economy. (8) Global oil demand growth increasing, not decreasing. (9) So why are oil prices falling? (10) Earnings still in record territory. (11) Focus on underweighted S&P 500 Energy sector. (More for subscribers.)