Australian Investment Blog

Gold continues to falter but some sector stocks are strongGood morning everyoneOverviewAs the reality of the Fed rate rise sinks in across the markets we have seen some further action over night with Gold falling over $US25/oz testing its lows since early 2010 and money flowing back into $US sending the $A down over 1c, close to ~71c - see charts 1 & 2.In simple terms, a strong $US generally sends the price of commodities lower e.g. Last night Gold -2.4%, Silver -3.7%, Crude Oil -1.7% and Copper -1.3%. This is observed more clearly when looking at the $US Index and the CRB Index (Commodities Index) where the correlation is very close but inverted i.e. the $US has rallied strongly since 2011 and commodities have fallen - see charts 2 & 3.Turning to the MarketsMarket Matters believes that the US$ will top out in 2016 implying that the falling commodities have further downside yet. Thus, patience is required when considering investing in this sector.When compared to equities we see the likelihood being that all these major turns will coincide at the same time ie the high in the US$ will be concurrent with the high in the US equity markets and potentially a low in commodity prices.- see chart 7.