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Back on May 28th, I wrote an article entitled, Charts Imply the Threat of Deflation is Still Present. This is an update of the various charts that I am hoping will provide insight into the inflation/deflation debate. The interpretation of these charts should provide another gauge of inflation, and will complement the analysis of governmental reports. After reviewing these charts, it appears to me inflation remains in check.
The first chart is the Goldman Sachs Commodity Index. The bearish trend channel pattern, shown in red, remains intact. It's hard to imagine inflation without commodities in a bull market. We should continue to watch this chart for any upside break-out.
The next chart is wheat futures. You can clearly see how wheat futures have indeed broken beneath bullish trend channel support. However, I will wait until wheat futures break $6.00 to call a bear market for wheat.
As you'll next see, crude oil futures are inflation's only supporter in this analysis, and not a very strong one at that. The downward sloping bearish red trend line has been broken, but I think the more dominant trend is a sideways consolidation between $75.00/barrel and $115.00/barrel area. If I'm correct, then crude oil futures have consolidated sideways since the beginning of 2011, and are not yet forecasting inflation.
Copper futures remain listless and are in fact testing long term support at 3.0000.
Once they broke out of their sideways consolidation, spot gold prices have retreated significantly. Similarly to commodities in general, gold prices should turn around and move higher if inflation gains a foothold.
Finally, the U.S. Dollar Index remains benign, having traded sideways since 2008, the year in which it placed its all-time low.
In conclusion, charts are objective and speak for themselves. According to my interpretation of these charts, inflation remains in check even as global governments have utilized trillions of dollars to prop up their economies. Perhaps deflation remains a possibility that few consider.
Chief Investment Strategist
Preferred Planning Concepts, LLC
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Des Plaines, IL 60018
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