What Is The Baltic Dry Index?

From Wikipedia:

The Baltic Dry Index (BDI) is a number (in USD) issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a time charter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."

Every working day, a panel of international ship brokers submits their view of current freight cost on various routes to the Baltic Exchange. The routes are meant to be representative, i.e. large enough in volume to matter for the overall market.

These rate assessments are then weighted together to create both the overall BDI and the size specific Supramax, Panamax, and Capesize indices. The BDI factors in the four different sizes of oceangoing dry bulk transport vessels.

The Baltic Dry Index directly measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand). Indirectly, the Baltic Dry Index measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal, metallic ores, and grains.

Here is the latest chart:

Baltic Dry Index Chart (courtesy ZeroHedge.com)

In the latest daily report, the Baltic Dry Index fell to 522, a new all-time low. While equities markets around the globe are posting record high prices, actual economic activity seems to point to a serious global recession on the near-term horizon.

In my last posting here dated January 20, 2015, with Gold trading near $1300.00/oz and Silver trading near $18.00/oz, I suggested that Gold was no longer "the most hated asset class" and, as such, I recommended liquidating precious metals related investments. The XAU Gold/Silver Mining Index was up 20% YTD at that time. Since then, gold and silver prices have retreated significantly, and most precious metals mining shares are down between 10% and 40% from their mid-January intra-day highs. Gold traded down to $1,215.00/oz recently and Silver plunged as low at $16.55/oz.

Today, Gold is trading near $1230.00/oz and Silver is trading near $17.30/oz.

In mid-January, my computer trading system alerted me to this potential correction in Gold and Silver mining shares. However, despite the recent actual correction, there are no new buy signals from my system in this group that would suggest any meaningful re-accumulation of these shares is warranted. Unfortunately, perhaps, we don't always listen to our systems. Late Friday, February 13th, I began re-establishing selected gold mining shares that having been particularly beaten down during these last 4 weeks. I also established a small short position in the S&P 500 Index as a hedge against my long gold mining shares (on a ratio of $8 short for every $1 long).

Except for the fact that most of my U.S. stock market gauges are now in "overbought" territory, my computer trading system has yet to signal a sell signal in any major index. While not following a "tried and true" system can sometimes be hazardous to your pocketbook, sometimes it is necessary to initiate a small position where you think the next big trade will be, in order to better connect to real live market forces.

Is Gold Still The Most Hated Asset Class?

Gold traded at $1,297 today and silver traded at $18.07. It seems like yesterday when almost everyone on the planet was proclaiming the "end-of-days" for the yellow metal and $1,000 gold (or lower) was forecast by many to be inevitable. Of course, at the same time there were quite a few silver bears who were sure that silver would trade below $12.00.

Facts:

Gold traded down to a low at $1,130 on November 7th, 2014. It's now 14.5% higher at $1,294.

Silver traded down to a low at $14.16 on December 1st, 2014. It's now 27.4% higher at $18.04.

Most gold and silver mining shares are now up more than 50% from their mid-December lows!

Perhaps gold and silver are no longer the most hated asset class?

Like many investment advisers, I worry every day about the potential "big surprise" that will upset my grand plans for superior investment performance and exceptional risk/reward potential. My wife tells me almost every day that "markets are fixed" with U.S. stocks destined to head higher, while alternative investments like gold and silver will suffer surprising setbacks even in the most "friendly" precious metals environments. Even though I don't think she's right about stocks "destined" to move higher or gold destined to move lower, I do hope she's right about the markets being "fixed", or at least a little fixed. The reason why I hope the markets are at least a little fixed is because I don't think that "smart money" or the "fixers" can hide from my computer-based trading system.

And now back to Earth.....

1. The rally in gold, silver, and related precious metals mining shares is extended and due for a pause (or even a minor correction).

2. Given the extent of the rally in gold and silver prices since late last year, I think gold and silver mining shares should actually be much higher than they are now. This worries me!

3. Everyone is expecting a "bazooka" sized monetary easing from the European Central Bank this coming Thursday, January 22nd. Given last week's SNB shocker, can we really trust the major central banks to follow through on even their strongest rhetoric? If the ECB fails to deliver this Thursday, then gold and silver prices will fall sharply for several days, at least. I would prefer to be on the sidelines during this potential risk.

Here at $1,300 gold and $18.00 silver, I am not sure there is an edge for gold and silver investors. The "hate" just isn't there anymore! While there are still plenty of bears, the bullish camp is no longer in hibernation!! It's time to liquidate precious metals investments, or at least scale back significantly. And no frowns please, as gold and silver mining shares have been the best performing stock sector so far this year, with no other sector even close!! The benchmark Philadelphia Gold/Silver Mining Stock Index is now up 19.32% year-to-date. The next best performing group is Biotech with a 7.09% gain. The S&P 500 Index is down 1.77% year-to-date, and almost every other sector is also in negative territory this year so far!