My Two Cents

Baltic Dry Index and Gold

Chris Farrell Apr 2, 2009

Is the global economic recession starting to bottom out? One indication that activity is slowly picking up is the Baltic Dry Index. In a recent interview with Kai Ryssdal on Marketplace, economist Susan Lee explained why she follows the Baltic Dry:

Essentially the Baltic Dry tracks the average daily price for shipping dry bulk like coal, iron ore, wheat and soybeans. There are three things that make it such a good leading indicator. One, the index looks at raw materials, so it captures activity at the very beginning of the production process. Two, it looks at ocean shipping, so it reveals what’s happening to international trade — the critical driver of global growth. And, three, the shipping business depends heavily on credit, so the Baltic Dry indicates whether credit is tight or loose.

The price of gold has also been strong with the global economic crisis. But now gold is off it peak. Thanks to the website, here is a chart of the Baltic Dry Index and the price of gold.

It’s still too early to say, of course, and the BDI has taken a slight turn down. But these are two indices worth following, and it’s intriguing that the message in the chart seems to be the same message in the U.S. stock market: There is a slight improvement, but it’s fragile.

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