Reaction To Fed Mixed
Tuesday’s Federal Open Market Committee (FOMC) announcement went under the investor microscope on Wednesday and the result was a flight to gold and other commodities. The dollar dropped sharply against major currencies while equity markets declined in light trading.
Many analysts were mystified by the language and tenor of the Federal Reserve announcement. Scott Anderson, a senior economist at Wells Fargo summed up the Wall Street sentiment, “They have to do a better job of communicating. The markets abhor the vacuum of uncertainty around QE2.”
The intentionally vague aspects of the Fed’s guidelines for the acronym QE2 for Quantitative Easing 2, had analysts reading between the lines as to what events would spark the second round of printing money. The consensus is that the Fed will do whatever easing it takes to prevent double digit unemployment and advance the slow moving recovery and places these priorities ahead of inflation concerns.
Precious Metals and Commodities Up
Gold closed in on the 1300 mark and hit record highs for the fifth consecutive session. Gold is up nearly 17% in 2010. As the Dow Jones continues to flirt with the 11000 level, investors were cautious despite strong quarterly reports.
Investors looking for safety flocked to precious metals. Silver closed in on a 30 year high at $21.00 an ounce and is up 9% in September. Spot palladium rose 3.6% to $545.50 an ounce and platinum closed at $1631.50 up 0.7%.
The euro rose to five month highs against the dollar as the inverse relationship between gold and the dollar returned to form.
Gold has benefited from basic concerns about the health of financials and the impact of reform legislation on those institutions as well as from stale currency markets. When there are concerns about currencies, equities and the financials, gold has become a stable asset.
What The Fed Is Saying
The Fed seems to be shifting away from its stance that growth is acceptable. While companies are performing profitably, those profits are not translating to jobs and there is no indication of a change in corporate strategy.
The Fed seems to be saying that if employment does not improve by the mid-term elections, they are prepared to print and ease credit to get companies to move forward.
The cheap dollar may help with exports and will certainly continue to lift prices for most commodities that are traded in dollars.
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