New Commodity Inflation Boosting Commodity Countries
Inflation is easing. The global economy is slumping. Why would you buy Canada and Australia?
There is a hidden increase in raw material prices that will boost inflation in the coming months. 2022 was a Big Bull in commodities but commodities like gold and oil started to get soft in the latter part of the year. The tightening Fed was the main reason. Higher interest rates means that it costs more money to hold and store commodities so they become less valuable.
So the Fed increased interest rates and reduced money supply and that knocked the sails out of the Big Bull in commodities in 2022.
But the market doesn't live in the present. It lives in the future. It is always trying to figure out what is going to happen.
So, right now, the market is looking for the Fed to stop hiking rates in about May and actually start to decrease interest rates. So commodity prices are starting to rally.
Take a look at the chart.
There are two bar charts representing Canadian and Australian investments and the gold mountain chart is the price of gold.
Notice there is a strong correlation between the price of gold and the price of Aussie and Canadian assets. Until recently.
Why the difference now?
I think the difference is coming about from the shocking speed of the Fed's tightening which has been driving the dollar higher.
But now we are seeing the dollar drop as the market thinks that the Fed is close to finishing their tightening cycle while other countries, like Canada and Australia, are still going to be going strong with tightening.
So that should put the relationship between commodities and the two commodity countries back in line.
That would mean that both of their stock markets and currencies would rally strongly.
I have already got long Euro stocks. Now is the time to start accumulating Canadian and Aussie dollars and stocks.