How Money Supply Affects Commodity Tendencies

As a general rule, futures prices respond to inflation. Some, such as gold, tend to rise; others, such as the U.S. dollar, tend to fall. Here are the basics of money supply/commodity tendencies:

  • Metals, agricultural products, oil, and livestock contracts generally tend to rise along with money supply.

  • Generally, bond prices fall, and interest rates or bond yields rise in response to inflation.

  • Stock index futures are more variable in their relationship with the money supply, but eventually, they tend to rise when interest rates are falling, and they tend to fall when interest rates reach a high enough level.

  • Currencies tend to fall with inflation.

In a global economy, many of these dynamics occur simultaneously or in close proximity to each other, which is why an understanding of the global economy is more important when trading futures than when trading individual stocks.

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