Commodity Indexes. One of the key aspects of intermarket analysis, which has been stressed repeatedly in the preceding chapters, has been the need to incorporate commodity prices into the financial equation. | 94 THE DOLLAR VERSUS INTEREST RATES AND STOCKS SUMMARY This chapter shows the strong link between the dollar and interest rates. The dollar has an important influence on the direction of interest rates. The direction of interest rates has a delayed impact on the direction of the dollar. The result is a circular relationship between the two. Short-term rates have more direct impact on the dollar than long-term rates. A falling . dollar will eventually have a bearish impact on financial assets in favor of tangible assets. During times of severe stock market weakness the dollar will usually fall as a result of Federal Reserve easing. Rising commodity prices will in time become bearish for stocks. Falling commodity prices usually precede an upturn in equities. Gold acts as a leading indicator of inflation and a safe haven during times of political and financial upheavals. The normal sequence of events among the various sectors is as follows Rising interest rates pull the dollar higher. Gold peaks. The CRB Index peaks. Interest rates peak bonds bottom. Stocks bottom. Falling interest rates pull the dollar lower. Gold bottoms. The CRB Index bottoms. Interest rates turn up bonds peak. Stocks peak. Rising interest rates pull the dollar higher. This chapter completes the direct comparison of the four market sectors currencies commodities interest rate and stock index futures. Of the four sectors the one that has been the most neglected and the least understood by the financial community has been commodities. Because of the important role commodity markets play in the intermarket picture and their ability to anticipate inflation the next chapter will be devoted to a more in-depth study of the commodity sector. Commodity Indexes One of the key aspects of intermarket analysis which has been stressed repeatedly in the preceding chapters has been the need to incorporate commodity prices into the financial equation. To do this the Commodity Research Bureau Futures Price Index
