Updated: Jun 3
AriasWave research shows that some commonly held beliefs about certain correlations in the markets are unfounded, for example it is thought by some that interest rates and commodities are somehow correlated with one another but this has been found to be untrue even though at some points in history they may have lined-up a little this is usually temporary.
The US dollar is found to be inversely correlated with commodities because US dollar strength in dis-inflationary whereas commodities strength is inflationary.
The closest correlation that has been identified as significant is the correlation between commodities and the stock markets. Commodities usually lead stock market corrections at times by up to 10 years and in the case of the GFC period the commodities index has since fallen approximately 80% thus far and so the stock market will soon play catch-up.
Gold is thought by many to be a safe haven in times of economic hardship but this once again has been found to be untrue however it has a tendency to play catch-up to the commodities index before signalling a reversal in both commodities with gold leading the reversal after they have both bottomed.
So the US dollar starts off cheap and then as it then begins to gain strength it exerts an upward pull on interest rates until it becomes overvalued and less attractive to foreign investors and then begins to fall again and then because commodities being inversely correlated they start to rise and the whole cycle starts again.
Of course this is a basic understanding of what happens but nonetheless it’s good to envision the mechanics of what is going on under the hood then to just know the waves however in saying that; knowing the waves is the only true way of knowing exactly what is going on to then be able to make investment decisions based off them.
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