Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets_3

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Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets_3 COMMODITY INDEXES ENERGY VERSUS METALS MARKETS 113FIGURE 7.11 — FIGURE 7.12THE CRB FUTURES PRICE INDEX VERSUS THE CRB ENERGY FUTURES INDEX FROM 1985 TO THE CRB FUTURES PRICE INDEX VERSUS THE CRB PRECIOUS METALS INDEX FROM 1985 TO1989. THE ENERGY MARKETS ARE ALSO IMPORTANT TO THE CRB INDEX AND SHOULD BE 1989. THE PRECIOUS METALS GROUP IS ALSO IMPORTANT TO THE OVERALL TREND OF THEGIVEN SPECIAL ATTENTION. THE 1986 BOTTOM IN THE CRB INDEX WAS CAUSED PRIMARILY CRB INDEX. THE METALS MARKETS USUALLY LEAD THE CRB INDEX. THE LACK OF BULLISHBY THE BOTTOM IN OIL PRICES. CONFIRMATION BY THE METALS IN 1988 WAS A WARNING OF A PEAK IN THE CRB INDEX. A METALS RALLY IN LATE 1989 ALSO HELPED LAUNCH A CRB INDEX RALLY. CRB Futures Price Index CRB Futures Price Index ENERGY VERSUS METALS MARKETS Ive already alluded to the interplay between the oil and precious metals markets. Although the fit between the two is far from perfect, its useful to keep an eye on both. Since both are leading indicators of inflation, it stands to reason that major moves in one sector will eventually have an effect on the other. Figure 7.13 compares the CRB Energy Futures Index to the CRB Precious Metals Futures Index from 1985 through the end of 1989. Although they dont always trend in the same direction, they do clearly seem to impact on one another. Although the metals had been trending irregularly higher going into mid-1986, they didnt begin to soar until the summer of that year when the oil price collapse had been reversed to the upside. Both sectors dropped through the second half of 1987 and most of 1988, although the 1987 peak occurred in the precious metals markets first. Oil prices rose through most of 1989. However, it wasnt until the second half of 1989, as the oil rally gathered more momentum, that the inflationary implications of rising oil prices began to have a bullish impact on precious metals. And, of course, if both of those sectors are moving METALS AND ENERGY FUTURES VERSUS INTEREST RATES 115114 COMMODITY INDEXES the financial community (bond traders, in particular) of a possible uptick in inflation.FIGURE 7.13 The bond market seems especially sensitive to trends in oil futures. The trend in goldTHE CRB ENERGY FUTURES INDEX VERSUS THE CRB PRECIOUS METALS FUTURES INDEX FROM and oil also plays a decisive role in the attractiveness of gold and oil shares, which1985 TO 1989. SINCE THESE TWO COMMODITY GROUPS ARE LEADING INDICATORS OF IN- will be discussed in Chapter 9. ...