A number of market participants, arm chair commentators and leading experts alike have been stating that the strength in commodity prices is only really got to do with the weakness of the USD itself and not the inherent strength of commodities themselves. Today we will present two graphs of the Goldman Sachs Commodity Index against a basket of currencies excluding the USD (using the ETF UDN as a proxy) and against the Aussie dollar.
It appears that commodity prices have stopped falling in non USD terms and have done so for the last 7 months. We would suggest that a critical juncture in the fortune of commodity prices is fast approaching. Breaks above the resistance lines in the graphs above indicate that commodities as a group have become the strongest currency in the world. Of course when that happens (and we think it will) “inflation” will have officially gripped the globe. Commodity bulls be patient – good things take time!
