The Baltic Dry Index crashed to an all-time low. What does it mean for the
gold market?
In February, we reported that the Baltic Dry Index had plunged to the
lowest level since 1986. We stated that this was a sign of a slowdown in the
global economy, since the index measures the cost of shipping freight around
the whole globe, which is very sensitive to demand for vessels, driven by
increased global production and demand for raw materials. We also pointed out
that the BDI was considered to be a leading indicator, which has a habit of
foreshadowing major turns in the economy and the stock market by about 3 to 6
months. Interestingly, in August, i.e. about half a year later, there was a
stock market sell-off.
The Baltic Dry Index staged a recovery mid-year, however, it has been
declining since August and on Friday it plunged below 500 for the first time
in history. It is a little disturbing, because November is usually one of the
busiest months of the shipping season due to the upcoming holidays.
Chart 1: Baltic Dry Index from November 20, 2014 to November 20, 2015.
Source: quandl.com
The reason for the decline is that the world trade is stagnating, as you
can see in the chart below.
Chart 2: Merchandise World Trade (volume) from January 1991 to August
2015.
Source: CPB World Trade Monitor.
The take-home message is that the current levels of the Baltic Dry Index
are not encouraging. It signals a further slowdown in global economic
activity. Given that the shiny metal is the best asset during slowdowns, it
should be positive news for the gold market in the long run. However, gold is
usually a bet against the U.S. economy, not against the global economy. As
long as global turbulences do not affect the U.S. economy, gold will not get
a boost.
If you enjoyed the above analysis, we invite you to check out our other
services. We focus on the fundamental analysis in our monthly Market Overview
reports and we provide daily Gold &
Silver Trading Alerts with clear buy and sell signals.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News
Monitor and Market Overview Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview
Did you enjoy the article? Share it with the others!
