I have read much financial commentary that claims we are in a deflationary spiral. They cite the collapse in commodity prices along with the collapse of the Baltic Dry Index (a barometric measure of shipping through the global economy)

A collapse in the Baltic Dry Index it is maintained leads to recession, or even a full blown depression!

In terms of Gold they maintain that as it has not collapsed to the extent of other commodities therefore a collapse in the Gold price is inevitable. (Armstrong’s call for $600 Gold for example)

Is this true? Lets take a look at the performance of commodities and the  Baltic Dry Index.

Here is a PerfChart of the performance of the Bloomberg Total return index of a broad range of commodities over the past 200 days. This includes agriculture, energy, precious metals and “softs” I also added the Baltic Dry Index.

Softs are commodities we all consume every day coffee, cocoa, sugar, corn, wheat, soybean, fruit and livestock

bloom1

You will notice the the Baltic Dry Index (light blue line) bottomed in Feb of this year along with ALL commodities including Gold at the same time.

Taking the Feb bottom as the starting point you can see they have all risen dramatically. The best performer is the Softs.

Here is a chart of the better performing “Softs” along with precious metals for comparison purposes.

bloom 2

Sugar is the star here up a staggering 50%

Petroleum  up about 20%

Coffee 20%

precious metals 20%

Precious metals have risen so far no more than my morning cup of Joe.

So whats my conclusion? I don’t think deflation is going to be a problem going forward. In fact the dramatic recovery of commodity prices makes me think that sooner, rather than later, these increases will show up in consumer prices, leading to inflation.