Bonus Chart — Commodities vs Gold vs Valuations
1.Bonus Chart 1 — Leads and Lags
To put it slightly differently, here’s that equal-weighted commodity price index and the gold $Gold - main 2508(GCmain)$ price on one chart. You can see the divergence between gold and commodities very clearly here.
As I noted, I believe the most likely outcome here is catch-up by commodities, and indeed some of the drivers of gold (e.g. monetary tailwinds, weakening dollar, geopolitics) are going to ultimately be helpful for the rest of commodities too.
But it’s not just the divergence — although intermarket analysis can be highly useful in spotting risks and opportunities like this, we also need to consider valuations…
2.Bonus Chart 2 — Valuations
The final chart of interest in this week’s session shows my valuation indicators for gold and commodities. As you can see, gold is expensive and commodities are cheap.
But like any other asset or market, valuations are only one factor, and typically just the starting point — you also need the macro drivers to line up (yep), and the technicals to help with timing and building conviction (also yep).
In other words, what I am telling you here is that commodities are cheap, the macro is starting to come into place, and technicals are turning bullish. That’s the full package, that’s the kind of setup we look for, and this is definitely something we’re keeping close tabs on. And you know, it’s almost ironic to think that just as everyone seems to have forgotten about the “Commodity Supercycle“, we’re now looking at a potential new commodity cyclical bull market…
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