September 07, 2012

Week In Review: No End In Sight For Gold & Silver Rally Ahead Of Fed Decision, Copper Surges & NatGas Falls

Details

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

Commodities were mixed this week, but metals prices surged on hopes of central bank stimulus. Energy was a laggard, but overall financial markets sentiment was positive. Stocks, as measured by the S&P 500, rose to fresh 4 1/2-year highs.

Macroeconomic Highlights

Underpinning this week’s rally was the European Central Bank’s decision to resume its bond-buying program in order to bring down stubbornly high interest rates on Spanish and Italian debt. The decision was expected, but nonetheless welcomed by markets.

In his remarks, ECB President Mario Draghi said the central bank's bond purchases are potentially unlimited, but that they will be fully sterilized. In other words, the ECB will not expand its balance sheet and partake in quantitative easing as the U.S. Federal Reserve has done.

Speaking of the Fed and quantitative easing, hopes for a third round of quantitative easing (QE) were bolstered after a batch of disappointing U.S. economic data this week.

The ISM said that its manufacturing index fell from 49.8 to 49.6 in August, remaining in contraction territory for a third-straight month.

Meanwhile, employers added only 96K jobs in August, according to the Bureau of Labor Statistics. That's below the anticipated130K. However, the unemployment rate—which is derived from a separate survey—ticked down from 8.3 to 8.1 percent—but that was due to people dropping out of the labor force.

The Federal Open Market Committee will meet next week to make its next policy decision. The Sept. 13 meeting will be widely followed due to anticipation that the central bank may unveil QE3 to reinvigorate economic growth.

Commodity Wrap