August 24, 2012

Week In Review: Silver Surges 9%, Gold Heading To $1700 On Stimulus Talk, Platinum Jumps Another $80

Details

We examine the latest developments in commodity markets and the week’s performance.

Commodities rallied broadly this week, led by precious metals, as Federal Reserve stimulus hopes picked up steam. Only natural gas and wheat fell fractionally. The S&P 500 stock index briefly hit four-year highs on an intraday basis, but finished the week down less than 1 percent.

Macroeconomic Highlights

Investors received conflicting messages on future FOMC monetary policy this week.

In the minutes from the Aug. 1 Fed meeting, investors learned that central bank officials were extremely close to unveiling new stimulus measures.

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," said the minutes.

But on Thursday, St. Louis Fed President James Bullard dampened stimulus hopes when he said that the minutes from the Aug. 1 meeting were “stale” and that the recent improvement in economic data meant the central bank probably won't take any new action.

"If we were to resume, and I think we will, 2 percent growth, maybe a bit stronger than that in the second half of the year, unemployment ticks down through the rest of the year, that's not a great outcome, but that's a good enough outcome to keep us on hold," he said.

Then on Friday, Chicago Fed President Charles Evans countered his colleague’s views in comments to CNBC.

"The outlook for growth is 2 percent, if we are lucky 2.5 percent over the next 18 months to 2 years. Back in the spring we thought it was going to be 2.5-3 percent ... we stepped down our outlook, unemployment is 8.3 percent, there's a lot of reason to do more," he said.

In the end, investors were left confused about whether the Fed will act or not. Nevertheless, the sense is that the Fed is poised to ease monetary policy further should economic growth stumble. In other words, the bar for additional policy action is not set very high.

That gives risk assets—commodities and stocks—downside protection against disappointing economic data, which is a very favorable environment for bulls.

Investors will seek more insight into Federal Reserve policy next week, when Fed Chairman Ben Bernanke makes his annual speech at Jackson Hole, Wyo., on Friday morning.

Commodity Wrap