Written by Sumit Roy  |

August 01, 2012

Market Wrap: Gold, Copper Sink After Fed Fails To Act, Oil Outperforms As Attention Shifts To ECB

Details

Most commodities fell after the latest FOMC policy meeting, but oil rose.

Commodities mostly fell after the Federal Reserve failed to unveil any new stimulus measures in today's policy decision. In its accompanying statement to today's decision, the central bank reiterated that it "will provide additional accommodation as needed to promote a stronger economic recovery," but didn't offer any clues on what that accommodation would be or when it would take place.

Nonetheless, the majority of market observers weren't expecting the Fed to act today. Most anticipate that it will unveil a third round of quantitative easing at its September meeting and another smaller group sees Chairman Ben Bernanke announcing QE3 in his Jackson Hole speech at the end of this month.

Regardless, attention now shifts to another central bank—the ECB—which will make its monetary policy decision on Thursday. Traders are hoping that ECB President Mario Draghi follows through on his pledge to do whatever it takes to preserve the euro and stem the sovereign debt crisis with firm and decisive action.

Ahead of that decision, Spanish 10-year bond yields—currently seen as the best gauge of eurozone sovereign debt fears—were last trading down by 2 basis points to 6.73 percent.

In today's macro data, ADP reported that private payrolls in the U.S. expanded by 163K in July, higher than the 120K that was expected. While encouraging, in recent months the ADP survey has diverged from the official government report. For example, ADP said that private payrolls expanded by 172K in June, but the government reported a mere 84K increase.

Meanwhile, the ISM manufacturing index ticked up from 49.7 to 49.8 in July, but remained in contraction territory—below 50—for a second month.

The U.S. Dollar Index jumped by 0.52 percent to 83.06.

• Gold fell after the Fed's nonaction disappointed some traders. The yellow metal was last trading down by $13, or 0.81 percent, to $1601.30, while silver shed $0.59, or 2.1 percent, to $27.40.
  
  Platinum lost $18, or 1.27 percent, to $1400.75 and palladium fell by $6.38, or 1.08 percent, to $583.
  
  
• Crude oil outperformed after bullish inventory figures from the EIA. Brent was last trading up by $0.77, or 0.73 percent, to $105.59, while WTI rose by $0.73, or 0.83 percent, to $88.79.
  
  According to the EIA, U.S. crude oil inventories decreased by 6.5 million barrels, gasoline inventories decreased by 2.2 million barrels, distillate inventories decreased by 1 million barrels and total petroleum inventories decreased by 7.2 million barrels last week.
  
  
• Natural gas was lower by $0.03, or 1.06 percent, to $3.17/mmbtu as prices came off eight-month highs. However, weather forecasts continue to indicate warmer-than-normal temperatures across the United States, which should provide support.
  
  
• The grain sector plunged, as corn sank $0.14, or 1.77 percent, to $7.92/bushel, while soybeans lost $0.58, or 3.34 percent, to $16.64 and wheat dropped $0.22, or 2.45 percent, to $8.67.
  
  Analysts blamed profit-taking and forecasts for rain for the day's decline.
  
  "The U.S. weather model has a little wetter forecast than yesterday, but overall it looks like a similar pattern in August that we saw at the end of July," said Jason Nicholls, meteorologist for AccuWeather.
  
  
• Copper was dragged down by the broad-based retreat in commodities. Prices were last trading down by $0.06, or 1.87 percent, to $3.35/lb on Comex.