Asset Class Review: Crude, Gold and the Dollar

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I'm starting a series of posts that look at snapshots of asset classes that are correlated with stocks owing to intermarket themes of growth/risk/reflation vs. recession/risk aversion/deflation.

Note how crude oil (top chart) has retraced only a fraction of its massive decline and, recently, has been struggling to stay above its June highs. Crude is an important asset class in that it is sensitive to global demand and growth, especially from emerging markets. A topping crude market would have me questioning the upside in stocks for that reason.

Gold (middle chart) is a bit more complicated in that it is both a commodity and a surrogate currency. Observe how it, like crude, bottomed ahead of the March low in stocks and how it also has been struggling to make new highs. A strong gold market is partially reflective of weakness in the U.S. dollar, which makes the inability of gold to make new highs lately all the more troubling, given recent dollar weakness. One interpretation: markets are not buying the inflation theme, making gold less attractive as a dollar/currency hedge.

The U.S. dollar (bottom chart) displayed clear strength during the late 2008 and early 2009 stock market weakness, acting as a currency safe haven. With equity markets righting themselves, we've seen the dollar move lower versus the euro and versus emerging market currencies. Recently, the dollar moved below its June lows, only to bounce back in the June range. A bottoming dollar would correlate well with toppiness in commodities and both would weigh against the upside for stocks.

Comments

[Spartacuss:]

Yawn! Yup, the sun rises in the East, and guess what? It is right there in the charts....

I guess when you get paid for writing something, does it have to be enlightening? Profound?

And above all avoid anything that sounds too discouraging like the facts of what is going on out there.

Aug 19 09:29 AM

[Larry House:]

We have seen price action in asset classes that has been uncharacteristically aligned. This is playing havoc with diversification models. I think the US $ is the key, and the other assets will be put in motion by the movement in the $ as we move forward. I say hold on to oil and gold (and silver) and short the $.

Aug 19 11:26 AM

[jt:]

--Yawn! Yup, the sun rises in the East, and guess what? It is right there in the charts....I guess when you get paid for writing something, does it have to be enlightening? Profound?

You said that right spartacuss...or how about a little more research before posting as "expert" analysis this bit of trifle:

"A strong gold market is partially reflective of weakness in the U.S. dollar, which makes the inability of gold to make new highs lately all the more troubling, given recent dollar weakness. One interpretation: markets are not buying the inflation theme, making gold less attractive as a dollar/currency hedge"

Well, your interpretation, unfortunately for those who want to learn the truth (now, who in the world wants the truth??...I confess, it would appear not very many Americans...but for those who do), the fact is that the investment demand for gold (and silver) has been tremendous!!! Hmmmm...there goes that piece of expert info down the tubes.

Any other possibilities?...howz about the forensic approach: Cui bono? For whose benefit? Who gains? Who benefits from the prices of gold and silver NOT going up? Hmmmmm...let's put on our 8th grade thinking caps...ok, hmmmmm...the Fed can create and has been creating almost without limit paper / electronic money that has found its way into the coffers of its bankster / financial institution shareholders and partners and o/w members of its (anti-gold) Cartel. Those who can touch the newly created money first (those just named) get the immediate benefit of new wealth. The value of that fiat funny munny is reflected in the value of gold and silver. Gold going up is a warning and reminder of the value of the paper (the electronically created from nothing) money going down...wouldn't want that now would they?

So...hmmmm...who might benefit the most from those prices not rising? Let's see...a little bit more research (after all, experts ARE experts, are they not, b/c they actually do some research?)--who has the largest short positions (actually NAKED short positions) on silver and gold on the COMEX?? Wow!!!...surprahz surprahz says Gomer, it's JPMorgain4Elites and HSBC!!!...and surprahz again...known members in good standing of the mafioso Fed-led and supported Bankster Cartel!!! My mouth drops open...again, in utter surprise.

So, dear "expert"...you're d*mn right it's troubling!!!! But it's troubling not that the prices are not going up when by all rights and evidence they should be, but b/c they are being forcefully HELD DOWN by those in real power...the Shadow Govt that now runs this country...the Fed and the Bankster Cartel, including our Treasury and its Secy, or should I say, the Treasury branch of Goldman Sachs. It is flat out criminal and against all the rules of the commodities markets. But then, hey, who cares...there's still food on the table, right?

jt

Aug 19 03:27 PM

[BrotherMaynard:]

all of these correlations go to 1 when you most need them to be at zero.

furthermore, "crude oil" is not an asset class. even goldman sachs knows not to refer to it as such. crude oil is a commodity - which in my opinion is as a much an "asset class" as insulin. but that's another debate.

Aug 19 03:40 PM

[Jabalong:]

Not to be insulting, but I think the author needs to put more meat on the bone before releasing an analysis otherwise what's the point reading it?

Aug 20 06:48 AM