Where are My Brother Commodities?
By Ryan J. Puplava CMT, February 2, 2009
Gold has been a leader in the move of industrial commodity prices. By bottoming and topping first, gold anticipates moves in commodity prices. The difference in time from the lead to the lag varies, but the relationship has held true for quite some time. Most commodities are priced in dollars and gold is the most sensitive commodity to the dollar because of its monetary qualities and that may be why the relationship exists.
In 1993, Gold bottomed in September while copper bottomed in October.
http://futures.tradingcharts.com/hist_GD.html
http://futures.tradingcharts.com/hist_CP.html
At the start of the commodity bull market, gold lead copper by bottoming in April of 2001 near $250 while copper bottomed in November of 2001 near $0.60.
http://futures.tradingcharts.com/hist_GD.html
http://futures.tradingcharts.com/hist_CP.html
Recently, gold has put in a bottom (since November last year) and it is in an uptrend while many commodities have gone down. Copper may have put in a bottom but aluminum finished January at new lows.
http://futures.tradingcharts.com/chart/CP/W
http://futures.tradingcharts.com/chart/AL/W
Since bond yields move in the direction of commodities, and gold leads bond yields, there is a relationship there as well. As gold leads bond yields, so does it also lead commodity prices - not just industrial commodities.
Let’s look not only in the absolute tops between gold and commodities, but also in the time lag. Gold bottomed in October 2006 while the CRB bottomed in January 2007. Last year, gold topped in March and commodities topped in July. The lag in the bottom for the two was about 3.5 months. The lag in the top was about 3.5 months. What’s important to notice is that gold bottomed in November last year. That would mean that commodities should follow if this relationship holds. The only question is how long until the rest of gold’s brothers turn up?
Ryan Puplava
© 2009 Ryan Puplava
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Ryan J. Puplava CMT
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