By Dominic Cimino
Although it feels like the threat of deflation has generally been discarded by the investment community, charts seem to imply the threat remains. Even as investors, analysts, and some at the Fed appear more preoccupied with impending inflation, a select group of charts infer that central banks do not have deflation thoroughly at bay. Let's take a look.
The first chart we'll consider is the Goldman Sachs Commodity Index. Notice how the index's all-time high was placed back in 2008! A much lower interim high was subsequently placed in 2011, and a well-defined descending bearish trend channel is in place on the weekly bar chart.
The next chart is a weekly bar chart for wheat futures. Although wheat future prices are in an established cyclical uptrend defined within the bullish trend channel, prices are precariously close to channel support and are nearly 50% off the all-time high set in 2008.
Crude oil futures continue to trend below the trend line resistance highlighted in red; while subsequent lower interim highs have been placed in 2011, 2012, and thus far in 2013. The market is currently 36% below the all-time high placed in 2008.
Copper futures have moved below the trend line support (e.g. in red), and have placed lower interim highs since placing their all-time high in 2011.
Spot gold prices have moved lower out of the consolidation area of 2011-2013, and are well below the all-time high which was placed in 2011.
Finally, the U.S. Dollar Index, which when weak can infer inflation, placed its low in 2008, and has recently firmed up once again after moving through the bearish trend line (e.g. in blue) one year ago.
In conclusion, I'm not guaranteeing deflation or discounting future inflation. Certainly anything is possible during this unprecedented time. I merely want to showcase some charts that are trending lower at the moment, and possibly indicating that a deflationary threat may still exist. Central bank efforts appear to have lifted some nations' stock market values, but key tangible commodities are struggling to move higher; and I believe this should continue to be monitored.
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