For months, every trade and every movement in commodities futures, stock index futures, bonds, currency futures and emerging markets has been tied by analysts and pundits to the arrival of quantitative easing. At times, it seems more (virtual, electronic) ink has been spilled on the Fed's response to the ongoing economic malaise than on the problem itself.
The day has finally arrived – and despite some whiplash in the precious metals markets, the response was surprisingly subdued.
"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability," the Federal Open Market Committee said in a statement. "Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow."
Both silver and gold futures convulsed in the moments after the Federal Reserve announced that it would buy $600 billion worth of Treasury notes. Some investors speculated – without cause – that big banks had front-run the announcement to some degree.
Gold futures were down $8.70 to $1,348.20 per troy ounce, while silver futures rose just 0.22 percent to $24.89 per troy ounce.
"The reality is that the gold market had already priced in the easing, and now it has to deal with deflationary worries," Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago, told Bloomberg News. "With deflation, initially, you have a general devaluation in all asset classes before money goes back into gold."
Crude oil, on the other hand, gained momentum after the announcement, with Brent crude oil futures up 1.39 percent to $86.60 per barrel. Oil, unlike gold and silver, isn't a pure monetary play – if the stimulus does succeed in revving up the United States' economic engine, oil consumption should rise overall.
Cocoa, coffee, cotton and sugar have been volatile all year – the softs have been hit by dramatic meteorological events around the globe, from devastating, lethal flooding in Pakistan to a brutal coldsnap in China.
Cocoa futures were down 1.69 percent to $2,799 per metric ton, while on the IntercontinentalExchange "C" arabica coffee futures slipped 1.63 percent to 196.15 per pound. Cotton, however, was able to keep its bullish momentum – it will take more than a Fed announcement to shift the fundamentals of a commodity where supply keeps falling so far short of demand, particularly in fast-growing China.
"The demand from China shows no signs of slowdown," Mike Stevens, an independent trader in Mandeville, Louisiana, told Bloomberg. "No price level surprises me anymore."
The same couldn't be said of copper futures, which dropped off after the announcement. The red metal ended the day down 0.36 percent to 382.50 cents per pound,
The UBS Bloomberg CMCI commodities index ended the day at 1,499.19, down 1.18 from the day's open.
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