Wednesday, October 2, 2013

Gold & Commodity Prices (excerpt)

It was a bad day for gold yesterday. It has been a bad year for gold. The precious metal is less precious, having dropped $403 since the start of the year and $35.75 yesterday to $1,290.75 an ounce. The price is down from a record high of $1,895.00 on September 6, 2011. That’s despite the implementation of QE3 in the US during September of last year and Abeconomics in Japan at the beginning of this year.

On September 19, after the FOMC decided not to taper QE the day before, the gold price did spike a bit to $1,365.50, but it is now $74.75 below that level. Yesterday, gold dropped despite the partial shutdown of the US government and the ongoing fiasco of fiscal recklessness in Washington.

I view the price of gold as an indicator of the underlying trend in the CRB raw industrials spot price index. That index has been flat-lining since the spring after falling at the start of the year. It remains at a relatively high level matching the previous cyclical peak during 2007, but it is 19% below its record high on April 11, 2011.

The industrials spot price index didn’t rally on the FOMC’s decision not to taper. Surprisingly strong manufacturing PMIs around the world for August and September also haven’t boosted the index. We continue to believe that the path of least resistance for industrial commodity prices is sideways. The action in the gold pits suggests that it certainly isn't likely to be higher. The same can be said for the Brent price of crude oil. Gold has been an indicator of the underlying trend in this price as well.

Today's Morning Briefing: Gold, Inflation, & Profit Margins. (1) Bad days for gold. (2) QE isn’t working for gold anymore. (3) Gold is negative indicator for other commodity prices. (4) Path of least resistance. (5) Gold suggests that emerging markets have lost their groove. (6) A hedge against reckless monetary and fiscal policies? (7) Inflation in assets rather than in CPI. (8) The 2008 trauma is keeping a lid on inflation. (9) All good for profit margins. (10) Focus on market-weight-rated S&P 500 Autos. (More for subscribers.)

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