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Column: Fed's words melt metals

Breitinger

The Federal Reserve continued indicating in an announcement on Wednesday that it was going to end its stimulus program.

Although a definite timeline has not been set, Federal Reserve Chairman Ben Bernanke has begun talking about an end to the $85 billion per month program.

Investors had previously piled into the gold and silver markets on the expectation that Fed stimulus would cause inflation, pushing prices to record high levels.

During the last year, as inflation remained low and stimulus’ end was in sight, prices have dropped sharply.

Wednesday’s announcement caused another plunge in the metals, with gold falling more than $100 per ounce (- 7.6 percent) and silver sliding as much as $2.38 per ounce (- 11 percent) in the aftermath. Both markets fell to the lowest price in more than two years.

As of midday Friday, gold for June delivery was trading at $1,293. Worse yet, silver stood at $19.96, down a staggering 60 percent from its all-time high made in 2011.

Going forward, some analysts believe that gold and silver will be traded more like industrial commodities and less like investment assets, possibly making them much more reactive to industrial demand than central bank actions.

Financial markets lose

Alongside gold and silver, other financial markets tanked as well. Stock markets, foreign currencies, crude oil and U.S. bonds all plummeted this week on the expectation that diminished stimulus would slow economic growth.

Crude oil, which rallied last week on Mideast concerns, had the largest percentage move, dropping as much as $5.50 per barrel (- 5.6 percent) in the wake of the Fed announcement. Crude prices were also dragged lower by rising stockpiles and weak economic data from China.

As of midday Friday, crude oil for delivery in August was trading at $93.30 per barrel, the lowest price since early June. In coming weeks, geopolitical concerns may begin driving the crude oil market again, especially if the conflict in Syria spills across borders.

Walt Breitinger is a commodity futures broker in Valparaiso. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.

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