The Commodity Research Bureau Raw Industrials Spot Price index is one of the three components of our Fundamental Stock Market Indicator, which has been highly correlated with the S&P 500 since 2000. The recent rally in the S&P 500 to record highs hasn't been confirmed by our FSMI, which backed off its cyclical high during the last week of March and first week of April.
The price of gold tends to follow the underlying trend in the more volatile CRB Raw Industrials index. So gold's two-day freefall of $203 per ounce to $1,360 is unsettling if investors see it as a harbinger of a widespread plunge in commodity prices resulting from a much weaker global economy. I don't see it that way. Nevertheless, gold's precipitous descent only one week after the Bank of Japan announced a massive quantitative easing program suggests that investors are losing their confidence in the power of central banks to stimulate economic growth. As a result, gold bugs may no longer be convinced that inflation will heat up, notwithstanding the monetary excesses of the central banks.
Source: Ed Yardeni — Ed Yardeni is the president and chief investment strategist of Yardeni Research Inc., a provider of independent investment strategy and economics research for institutional investors.