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Baltic Dry Index, ASX All Ordinaries, Gold & AMEX Charts

September 25th, 2013 · Greg Atkinson · 13 Comments

There is a lot of confusing news & information swirling around regarding the markets these days. Depending on who you listen to either the U.S. economy is recovering or Ben Bernanke is the ultimate asset bubble creator. In China some see the economy in a state of planned transition whereas others (including myself), see it as a command economy fuelled by unsustainable credit growth. Meanwhile in Australia there appears to be some confusion regarding if the mining boom is over or just having a rest?

Rather than deal with all the various interpretations of what various economic indicators may or may not be telling us, I am going to focus on just a few which refer I refer to fairly often.

First up a favourite of mine – the Baltic Dry Index.

Baltic Dry Index – 1 Year Chart


I often mention Baltic Dry Index although many economists & market watches don’t seem that interested in it these days.  One reason it has fallen out of favour is because it doesn’t correlate well with other market indicators which means it doesn’t make “nice” charts.

But my point of view is we shouldn’t ignore data or statistics just because they don’t trend the way we want or think they should. In fact, when an economic indicator starts to behave out of character then that attracts my interest even more.

Clearly as the one year chart of the Baltic Dry Indicator (BDI) shows below, it has has surged since mid August and is now above the 2000 level – a rise of around 100% in around a month. That sort of movement even attracts the interest of the mainstream finance media!

But we have seen similar rises (and falls) before as the 5 year chart below shows.

Baltic Dry Index – 5 Year Chart


The BDI tracks shipping rates for ships that carry dry bulk cargoes (such as iron ore, coal &wheat) and one major influence on the indicator over the last few years has been the over-supply of ships. In the years prior to the GFC hitting the markets shipping companies ordered a record number of ships which in turn created a classic over-supply situation.

Older ships have been scrapped, some ships laid-up and measures to reduce capacity (and costs) such as slow steaming have been implemented but alas, there are still too many ships out there.

Gradually the excess in supply will be worked out of the system and I have heard some in the shipping sector say the worst may be over.  But it remains to be seen if the latest bounce in the BDI can be sustained or if it will fall back near 1000 again.

Overall I would say the the Baltic Dry Index does suggest that the global economic growth is still patchy and downside risks remain. The worst may be behind us, but the days of solid global economic growth have not returned either.

Next let’s have a look at gold.

ETF GOLD vs ASX All Ordinaries Index – 5 Year Chart


As usual I am using the chart of the ASX Exchange Traded Fund (ETF) GOLD and I have charted this along with the ASX All Ords Index. This chart is a little misleading  since is starts when stocks were falling during the height of the GFC and gold was of course on the way up.  However what it does show is that for around a year now gold prices have been slipping back while the All Ords (XAO) has been on the rise.

To me this suggests that investors are a little less fearful then they were a few years ago. It also seems to me that we won’t be testing again the GFC low we hit back in early 2009 although on the flip side, it’s also unlikely we will hit the pre-GFC high any time soon either.

In regards to gold & silver in general let’s have a look at the AMEX Gold & Silver Index versus the All Ords.

ASX All Ords vs AMEX Gold & Silver Index – 5 Year Chart


As this charts shows, gold and silver prices (as reflected by the AMEX Oil & Gas Index – XAU) have been slipping back for quite a while and it looks like the downwards trend is still intact. My view has been for some time (years) that gold prices were in bubble territory and it appears that the bubble has finally popped. Some market watchers and analysts are talking gold prices up again but my guess is (and it is a guess) – that we will see further weakness in gold and silver prices in the months ahead.

Finally a quick look at the AMEX Oil & Gas Index. (XOI)

ASX All Ords Inded vs AMEX Oil & Gas Index – 5 Year Chart


My only comment regarding this chart is that the  ASX All Ords Index (XAO) and AMEX Oil & Gas Index (XOI) seem to be back in sync.  If this trend were to continue then it may set up a good year for the Australian stock market in 2014.

However I expect both the All Ords & AMEX Oil & Gas Index will get a shake-up before the year is out.

Greg Atkinson is the editor of Shareswatch Australia and Managing Director of Ohori Capital. He currently works & resides in Japan. He can be followed on twitter via @GregAtkinson_jp

13 responses so far ↓

  • 1 Stillgotshoeoson // Sep 26, 2013 at 7:59 pm

    I still think we will test the GFC lows on the ASX. Gold and Silver may dip further lower over the next 6 months with associated volatility swings but I am still bullish on GOld and Silver for the longer term. I feel any dips will be short lived and the bull run for precious metals to continue after any short term dips.

    The non taper reinforces my “this is not over” belief.

    PM’s to recover and do well into next year.
    The bond market to force interest rates higher next year. (normally bad for PM’s but I think safe haven status will add to prices)
    Still in the bearish camp (short term) on the DOW and ASX and expect a pull back. Thinking we may get through the Sept/Oct period ok and now Feb-Apr period is looking to be the volatile time.

  • 2 opinder // Sep 27, 2013 at 11:35 am

    Hi Greg..Excellent article..I am not 100% convinced that US economy is out of the mess yet! May be the headlines are driving our markets on the up.

    I might be wrong though..House prices In Australia are also on the up although that might be because we have lower interest rates.

    Fingers crossed and see what happens next..Thanks

  • 3 Lachlan Scanlan // Sep 28, 2013 at 5:10 am

    Shoes I am not about to give up on the metals either… but I think by know with all the bizarre happenings in PMs and the miners more so that there will be no gain in this market without the pain. At least with the miners it seems there cannot be too much pain left. For crying out loud they’re just about off the board altogether.

  • 4 Lachlan Scanlan // Sep 28, 2013 at 5:13 am

    Debt ceiling adjustment in 20 days time may correlate with a rally….actually just reviewing AUD gold chart now it seems we are at a technical juncture again. It will be important for it to bounce hard here or we are back to the higher odds of a return to the low again and maybe more.

  • 5 Greg Atkinson // Sep 28, 2013 at 8:03 am

    Thanks opinder. Yes house prices do seem to be edging up but the speculation over house prices seems to have edged up even more. My guess is that the impact of lower interest rates will wear off and I actually expected it to have worn off quite a lot already. But it appears there is a fair bit of speculation driving prices along now which in turn seems to have extended the impact of lower rates and this makes me even more cautious about the outlook for house prices over the medium term (i.e next 2-3 years)

  • 6 Stillgotshoeson // Sep 28, 2013 at 9:44 am

    Lachlan, I agree we could see further drops in precious metal prices in the near term but I am not concerned. As monies become available I add to my portfolio of miners bringing the average paid price down along with the purchase. If the volatility continues to 2016 (5 mopre years of this call) I am still not concerned. I am still working, I have money coming in from the business and other dividend paying shares in my portfolio. Upside potential is worth waiting for.

    “Billionaire hedge fund manager and gold bug Eric Sprott, who is also the CEO of Sprott Asset Management, thinks that by the next northern hemisphere summer, gold will be heading towards US$2,400.”

    Not alone in the thinking of uspside…

  • 7 Lachlan Scanlan // Sep 29, 2013 at 5:19 pm

    Eric could be right there while I don’t really feel sure one way or another. But like you Shoes I don’t really care so much being in it for the long term and having an income to build on. The AUD gold price has the best looking structure in place for a bottom formation.
    I think we are going to find oil prices going higher again on cost push soon too. The ME war scenario is still tense. Sadly. Assad seems certain the US will eventually invade regardless of his actions. I doubt he is in danger myself but the people there I deeply feel sorry for them.

  • 8 Greg Atkinson // Sep 30, 2013 at 8:18 am

    Over the long term, say 5 years or then it would seem reasonable to expect precious metals to post gains but for me it is all about timing now. Are we close for example to say a bottom in gold prices (and by close I mean +/-10%) or has it a lot further to fall..say another 20%?

    As for oil, my expectation is that it will gradually work it’s way up to $120-140 USD a barrel over the next couple of years what the US Fed does or doesn’t do is going to have a big impact here. (as it will have for PM prices also)

  • 9 GoWest // Oct 3, 2013 at 11:11 am

    Just back from the Pilbara and Iron ore is still being exported as fast as they can get it onto ships so its not surprising the BDI has jumped. More cattle to indonesia wont hurt it either – about time too, there are far too many dead ones on the side of the roads up there. Rio is surging ahead with massive expansions at Cape Lambert. BHP – They seem distracted by shale and JV’s. FMG – filling ships and controlling costs. Woodside is building platforms to increase gas to the Burrup plus their floating refineries. Karratha rents are well down, but definitely not cheap yet.
    In Perth people were laid off and 457’s have gone home (10% according to AusIMM) now the companies are finding out how much the brain drain is costing them – the turn around is underway.
    Perth housing reflects the change – strong sales, but median sale price went down because cheap houses were purchased mainly by first home buyers. Rents also down, so all good – the mining bubble has gone.
    The Oil market looks a bit high – makes you wonder what happened to cheap gas – stuck in Syria perhaps!

  • 10 Lachlan Scanlan // Oct 7, 2013 at 5:16 am

    Bearish signals off the gold prices at the end of last week. The bounce I said was necessary to save the immediate term bull scenario has failed to happen. Now we are looking at higher probabilities (not certainties of course) of further downside. The probabilities (targets) are either a much lower low just above the $1000 mark (approx 1050) or else the action may just fake out about 50 bucks lower than the recent lows…in which case it will amount to just a broadening of the current bottoming process.
    Gold in AUD’s will possibly pivot at a higher point than stated above. It is a different sort of chart.

    Your original intuition (approx 1000) may have been a good bet yet Greg

  • 11 Lachlan Scanlan // Oct 7, 2013 at 5:38 am

    Some of the more notable gold bulls like Rogers have adjusted their outlooks in this fashion. It is necessary imo to get the bull team into a more bearish tone in this type of market before it is likely to feel bullish again. Counterintuitively. I am still of the view that gold and silver are important stores of value over time despite this contemporary, paper inflicted volatility which makes holding more difficult for many who don’t understand the situation too well.
    My words are not meant to be financial advice. Do your own research.

  • 12 Greg Atkinson // Oct 12, 2013 at 4:44 pm

    Well gold has now dipped under $1300 USD/ounce (again) so I’m trying to work out if that price is close to a bottom or if it’s just a short term support level which will be breached soon.

  • 13 Stillgotshoeson // Oct 16, 2013 at 10:06 pm

    I will admit to having gold and silver to be doing a little better than they are currently.

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