Monday, April 25, 2011
As this chart shows, gold has a tendency to lead the price action in commodities. This in turn suggests that there is a monetary common denominator that is at work behind the scenes. Many—including the Fed—argue that commodity prices are rising solely because of strong demand in emerging market economies that has outstripped supply, but that doesn't explain why demand for gold should have arisen first, and so strongly. Nor does it explain why the prices of hundreds of commodities should be moving together, nor why thousands of commodity producers should have been outfoxed by demand all at the same time. Then there is the coincidence that gold and commodities started to rally in 2001, which just happened to be when the Fed started easing in earnest, after having pursued a very tight policy for the previous 5-6 years. And let's not forget that the dollar peaked in early 2002, and has been trending down ever since.
Posted by Scott Grannis at 7:27 AM