Commodities Market Indicators: Private Sector Sources of Market Data
One way to identify where the commodity markets are heading is by watching certain market indicators. These key metrics provide insight into what the markets are doing and help you design and calibrate an investment strategy based on the market fundamentals.
London Gold Fix
Gold is a special commodity because it’s one of the only commodities that has a monetary role. For decades, many currencies — including the U.S. Dollar and British Pound — were fixed to gold. Even though Nixon took the United States off of the gold standard in 1971, thereby heralding a floating exchange rate regime, gold is still used as a global monetary benchmark.
The Federal Reserve and other central banks hold gold bullion in vaults for monetary purposes, and gold is sometimes used by economists as a measure of inflation. Monitoring gold, both as a possible measure of inflation and for its monetary stability, is a good idea. Spot gold prices are fixed in London daily — in what is known as London Gold Fixing — by five leading members of the financial community.
Precious metals dealers closely monitor the London Gold Fix and use it as a global benchmark for gold spot prices. You could also get an idea of where gold prices are heading by consulting the futures markets, specifically the COMEX gold futures prices provided by the Chicago Mercantile Exchange (NYMEX).
Purchasing Managers Index
The Purchasing Managers Index (PMI), released by the Institute of Supply Management (ISM), is a composite index and a good indicator of total manufacturing activity, which in turn is an important barometer of overall economic activity.
The manufacturing sector is a large consumer of commodities, such as crude oil and natural gas, and a strong PMI signals that manufacturers are doing well and are likely to spend additional dollars on commodities. The PMI is released at 10 a.m. EST on the first business day of every month
Reuters/Jefferies CRB Index
The Reuters/Jefferies CRB Index is the oldest commodity index and is one of the most widely followed commodity benchmarks in the market. Although commodity indexes have their shortcomings — for example they only track commodities on futures contracts, thereby ignoring important commodities such as steel — they’re the best measure of where the commodities markets as a whole are heading. The Reuters/Jefferies CRB Index tracks 19 commodities, everything from crude oil and silver to corn and nickel.