Written by Sumit Roy  |

September 13, 2012

Market Wrap: Gold & Silver Surge After Huge Fed Decision, NatGas Struggles But Holds $3

Details

Commodities mostly rose after the Fed delivered QE3.

Commodities surged today, led by precious metals, after the Federal Reserve announced its long-awaited third round of quantitative easing (QE3). The central bank said it would buy $40 billion worth of mortgage-backed securities per month, indefinitely. The purchases will begin Friday.

The Fed also extended its pledge to keep its benchmark overnight interest rate—the federal funds rate—near zero from late 2014 to mid-2015.

These actions by the Fed were anticipated by most market participants. Expectations centered on either a program totaling close to $600 billion or an open-ended program of $50 billion a month or so, which is not far from what was delivered.

Importantly, the central bank promised to add to purchases if the labor market doesn't improve.

The open-ended nature of QE3 and the Fed's flexibility in terms of adding to purchases if growth doesn't improve is a particularly bullish combination for commodities. Total purchases could conceivably end up at over $1 trillion. On the other hand, it could be much less.

But in either event, the U.S. central bank has made it clear that it will be provide an extremely accommodative monetary backdrop as long as economic growth remains sluggish. Commodity bulls couldn't have asked for more.

• Gold was last trading up by $31.10, or 1.8 percent, to $1762.50 after breaching $1770 earlier, while silver added $1.17, or 3.51 percent, to $34.48.
  
  Platinum gained $34, or 2.07 percent, to $1678 and palladium rose by $10, or 1.48 percent, to $684.
  
  "[Fed officials] are emphasizing the growth mandate, and that means they don't care about inflation other than giving lip service to it," said Axel Merk, chief investment officer at Merk Funds
  
  "The price of gold will do very well in the years to come," he added.
  
  
• Crude oil rose to the top end of its recent range amid today's broad-based buying. Brent was last trading up by $0.30, or 2.07 percent, to $116.26, while WTI gained $1.12, or 1.15 percent, to $98.13
  
  "The market's been incredibly volatile since the Fed release," said Jason Schenker, president of Prestige Economics LLC. "In the long run this should be bullish because what they are promising is the gradual increase in stimulus. The $40 billion of mortgage debt each month will increase liquidity."
  
  
• Natural gas fell after the EIA reported that operators injected 27 billion cubic feet into storage last week, close to expectations. Prices were last trading down by $0.03, or 0.95 percent, to $3.03/mmbtu.
  
  
• The grain complex was slightly higher today. Corn was last trading up by $0.04, or 0.52 percent, to $7.75/bushel, while soybeans rose by $0.02, or 0.14 percent, to $17.43 and wheat added $0.09, or 1 percent, to $8.76.
  
  "I think there is potential that [the USDA makes] a reduction in harvested acres going forward," said Victor Thianpiriya, agricultural commodity strategist at ANZ. "I don't think there is enough demand rationing being done at the moment to justify prices close to $7 a bushel. I think $8 is probably still achievable."
  
  
• Copper rose by $0.05, or 1.26 percent, to $3.74/lb on Comex, the highest level in four months.
  
  "The FOMC meeting did not disappoint. There was significant new accommodation. It clearly shows that they are going to continue to write big checks, so to speak," said Bill O'Neill, partner at LOGIC Advisors.