Hostage Situation…
I’m furious right now.
In my decade long trading career, I’ve never seen two people make such a mockery of the markets.
Let me explain…
As you may be aware, Federal Reserve Chairman Ben Bernanke announced he was postponing the highly anticipated wind down of QE3 last Wednesday. He went on the record saying the Fed’s $85 billion a month stimulus program will continue until US economic data fully supports tapering.
Commodities prices surged on the news- gold popped 4%, silver surged 6%, and copper jumped 3%…
It was a classic risk on moment. Investors cheered Bernanke’s decision to further support the US economy as it recovers from the worst financial crisis since the Great Depression.
Upon first impression, it appeared commodity markets were ready to embark on a substantial year-end rally.
But then James Bullard opened his big mouth…
As you may know, Mr. Bullard is President of the Federal Reserve Bank of St. Louis.
In a Friday morning Bloomberg interview, he completely contradicted Bernanke’s statement from just a few hours earlier.
Mr. Bullard revealed the Fed will start tapering in October.
Commodity markets immediately responded by giving up all the sizable gains seen less than 48 hours earlier.
What the heck is going on?
Here we have two of the most powerful people at the Federal Reserve contradicting each other in the financial media.
Thanks to their confusing commentary, commodity markets are becoming extremely choppy and volatile. Investors are simply unwilling to stick with their positions due to all this uncertainty over Federal Reserve tapering.
It’s getting ridiculous…
In my humble opinion, the US Federal Reserve has essentially taken the commodity markets hostage.
Supply/demand fundamentals don’t matter to investors right now. Forget about the growing need for copper in China. Never mind that platinum and palladium will be in deficit next year. Ignore the fact that gold and silver are trading just above their cost of production.
Instead, investors have only one thing on their mind- Bernanke and the Fed.
How will this play out?
Until Federal Reserve committee members come to unanimous decision (and agree on it in the media), this incredibly annoying commodity market volatility will continue.
But here’s the deal…
At some point, supply/demand fundamentals will have to take center stage. The price of gold, silver, and other important hard assets are simply too cheap right now. Mining companies are shuttering operations, as they can’t even come close to turning a profit.
One thing’s for sure…
It’s going to be a glorious day when investors leave this Fed uncertainty behind and focus on what really matters- supply and demand.
Folks, the world’s insatiable demand for hard assets hasn’t changed. It’s about time commodity prices started reflecting that fact.
Until Next Time,
Justin Bennett
Category: Commodity Trading
