How gold reacts when the US economy points up
What today's gold investors need to know about tomorrow (Part 7 of 21)
Conference Board Leading Economic Index rises for fourth straight month
The Conference Board is an independent research association. It publishes leading, coincident, and lagging indices for the US every month. Out of the three indices, the Conference Board Leading Economic Index, or LEI, is the most important. It tends to indicate what’s going to happen in the future. It’s a weighted gauge of ten indicators designed to signal business-cycle peaks and valleys. A rise in the LEI indicates better future conditions.
For December 2014, the LEI increased by 0.5% to 121.1. This was the fourth straight month that the index reported a rise. It increased by 0.5% in November and 0.3% in October. It’s important to note that this indicator is subject to revisions if any of its components get revised.
Strong indicators
Eight of the LEI’s ten components rose in December. The interest rate spread and the Conference Board Leading Credit Index were the biggest contributors to the rise. In contrast, building permits contributed negatively. The average work week didn’t change from the previous month.
“December’s gain in the LEI was driven by a majority of its components, suggesting the short-term outlook is getting brighter and the economy continues to build momentum,” said Ataman Ozyildirim, economist at the Conference Board.
Impact on gold
Improving economic prospects for the United States will lead to a stronger US dollar, making other investments more attractive, including equities and high yield bonds. As we discussed previously in this series, gold and the US dollar are usually inversely related. So, a strong set of leading indicators is negative for gold (GLD) and gold stocks such as Goldcorp (GG), Barrick Gold (ABX), Newmont Mining (NEM), and Agnico Eagle Mines (AEM). The Market Vectors Gold Miners ETF (GDX) invests in senior and intermediate gold producers. GG, ABX, NEM, and AEM combined form 30.7% of its holdings.
In the next few parts of this series, we’ll analyze US debt components and how they impact gold-buying or -selling behavior.
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