Inter-market analysis suggests that the market continues to factor in higher inflation as an investment “theme” going forward. We look at the behaviour of the bond and equity markets (albeit relationships within) as confirming indicators for both our fundamental and technical outlooks for commodities. It appears that inflation protected treasuries continue to outperform non inflation protected securities and commodity based stocks are outperforming the general stock market. Whilst these behavioural patterns continue to hold we have every reason to believe that commodity prices (in USD, Euro and Yen terms) will continue to move higher over the coming weeks, perhaps even months.
It is rather interesting to note how the behaviour of XLB relative to the Dow and also KOL relative to the Dow World looks distinctively similar to any one of the commodity indexes (like the Goldman or CRB indices). Of course we wait patiently, crossing fingers that XLB will break higher against the Dow, perhaps we don’t need to – we know that once an investment theme is set in motion it tends to last for extended periods of time (perhaps even years).
