Who’d a thunk it?

The Austalian central bank raises interest rates by 0.25 percentage points and the result is a global rally in everything from gold to commodities to stocks.

Australia’s economy–2008 GDP $1 trillion–isn’t big enough to drag the global economy anywhere. But the rate increase to 3.25% came as a surprise. And the country is the first of the G20 economies to raise interest rates. This interest rate increase is the first by any major central bank since the financial crisis took hold.

Investors around the world took the increase as a sign that Australia’s economy has come back strong–central banks worried about recession don’t raise interest rates–and that the rest of the world won’t be far behind.

And if the global economy is ready to boom that means higher global demand and higher prices for commodites from iron ore to copper to coal. And if Australia’s central bank thinks it’s time to raise interest rates, may be it is, finally, time to start thinking about inflation again and about buying gold.

Gold hit a new record high just short of $1045 an ounce today.

The market moved so strongly on the news because Australia is a pretty good leading indicator on the global economy. The country’s economy is based on exports of industrial commodities such as iron ore, coal, copper, and nickel. If Australia’s economy is so hot that the central bank has to raise interest rates in an attempt to cool it down, the logical conclusion is that China, the biggest player in Australia’s commodities market  must be buying.

That would be massively reassuring to skeptical investors who have worried that China’s first half commodities buying binge wasn’t a sign that China and the global economy had creatd a sustained recovery but  simply a sign that companies who had drawn down inventories were re-stocking.