The potential for rising geopolitical tensions has been a story developing with some consistency over the last few months, helping provide some lift for the precious metals space. The SPDR Gold Trust ETF (NYSEARCA:GLD) is still trading within striking distance of its recent highs so there is clearly the possibility that we will see prices rise to 130 before the end of the summer. The iShares Silver Trust ETF (NYSEARCA:SLV) has participated in the optimism as well, with the silver ETF overcoming the $20 mark and threatening the highs from February.
Assessing Sentiment and Trend
For those that are looking for reasons to buy into the precious metals ETFs, these latest trends probably seem like a breath of fresh air. But when we look at the reasoning for why these moves have occurred, there is much less reason to get excited. Those that have established long positions based on the
This article was originally published on 6/24/2014 by James Hamilton
Last week I was at the annual meeting of the International Association for Energy Economics in New York City. One of the many interesting presentations was by Professor David Stern of Australian National University describing his research with Zsuzsanna Csereklyei and Maria del Mar Rubio Varas developing some stylized facts about energy and economic growth.
Below is one of the figures from Csereklyei, Rubio, and Stern (2014). Energy consumption per person is plotted on the vertical axis, and GDP per person on the horizontal axis, both on logarithmic scales. Each dot represents the values for energy and GDP for one of 99 different countries in 2005. The slope of the relation implies that a country with 10% higher income than average would be expected to consume about 7% more energy than average.
Csereklyei, Rubio, and
Over the last 140+ years, real commodity and producer prices (that is, commodity and producer prices deflated by the consumer price index (NYSEARCA:CPI)), have been highly correlated with the earnings yield (the ratio of earnings to stock prices, or the inverse of the P/E ratio) on American stocks (SPY, DIA, QQQ) over the medium to long term, just as nominal producer prices were highly correlated with long-term interest rates from the 1720s until World War I over medium- to long-term intervals. This latter relationship is what Keynes called "Gibson's Paradox," in deference to A. H. Gibson's rediscovery of the relationship in the 1920s.
(click to enlarge)(Sources: Roy Jastram's The Golden Constant, Robert Shiller's data, and Stephan Pfaffenzeller)(click to enlarge)
(Sources: Jastram, Bank of England)
Over the short term, the relationship tends to be more complicated than that. Commodity prices (RJA, GSG, DJP) can