Gold as a Leading Indicator
Many years ago I did a market study to determine if there was such a market, other than the major stock indices, which proved to be a historic leading indicator for the asset class markets. There was no doubt that lumber and copper had their places. But to my surprise it was gold and silver which provided the most consistant lead at market turns. At the time gold was considered an archaic market with the only real exposure coming from jewelry worn by American wrap artists. I dismissed the study.
What has changed is gold is much more widely held now and followed by even pension funds, who have diverted a percentage of thier monies into the precious metal. Having followed commodities and financial markets for much of my life I just can’t imagine that the amount of money now invested in gold, and the amount of attention paid to it is a good thing for asset class markets overall.
I thought of my past study today, which I dismissed because it seemed so silly to me then, when I looked at the quote board and saw stocks higher with the major currencies and yen pairs following happily along — no surprise here given the way they both shook off negative data last Friday — see EURUSD — and gold lower on the day and flashing a sell signal on the 4-hour chart. I will grant you the only thing more fleeting than a sell signal on a 4-hour commodity chart in a bull market is a sell signal on an hourly chart.
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I won’t put too much weight on gold not going along with today’s rally, but I will take it as reinforcement of my thesis that the current upmoves in place in the asset class markets are counter-trend moves against the long term bear trends, and that gold being a leading indicator market is lagging in sympathy with that overall trend.
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Jay Norris is the author of the best selling book Mastering the Currency Market, McGraw-Hill, 2009, and a Senior Market Strategist with BrewerFX.com
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