Macro Indicator: Gold vs. Commodities

au.cciAlso known as the ‘real price of gold’, the monetary metal adjusted by commodities can be a valuable indicator in identifying whether the macro economic environment is one of economic growth or contraction.

Commodities (positively correlated to the economy) will tend to out perform in an inflationary growth environment, while counter-cyclical gold will out perform commodities in a contraction and even deflationary environment.

This relationship and the conclusions derived from it are very important in defining the macro backdrop over long-term and even shorter-term periods.

au.cci

Notice how the Au-CCI ratio rose hard in the 2008 liquidation, declined into the inflationary speculation of 2010 and turned up hard after commodity speculation came to a screeching halt in 2011 amid the Euro crisis. Notice also how it has declined consistently during the post-2012 economic growth phase. If point 4 on the chart above holds a higher low to point 2, we would brace for a new contraction phase in the economy. *

*At the time this page was created (July 2, 2014) the ratio is constructive with a potential ‘W’ bottom, but will need to establish an up trend to change the macro.