Is the gold market still an indicator of other trends? Here's a look at the past relationships of gold to the dollar, the Consumer Price Index and the CRB.
Analysts often cite intermarket
relationships when touting a
marketís prospects. An analyst
might point out that utility
stocks have reached a new
high, and since they lead interest
rate instruments, the fixed-income
market would follow.
Or an analyst might observe
that copper is down, and since
copper is a key price component
for inflation indices, lower copper prices is bullish for
bonds. When you examine the historical data and compare
the impact that one market may have on another, however,
some such relationships do not actually exist, and further,
most of the relationships that do are not strong.
But some do, and they are worth noting.
One key barometer is the price of gold. After the inflation-ary
period of the late 1970s and early 1980s, the price of gold
as an intermarket or inflation indicator fell out of favor among
Wall Street analysts. If you examine the data, however, youíll
find that gold is as valuable an indicator as it ever was.