Crude Oil, Copper and Gold Prices Set to Drop

on Jun 21, 2012

Trade experts predict that prices of gold and crude oil are likely to fall as the Federal Reserve released an announcement about their planned monetary policy, lacking the intention to implement renewed stimulus such as a further round of quantitative easing. According to Ilya Spivak, currency analyst at, the FED’s denial of stimulus measures threatens to take crude oil and copper on a similar downward path to that which stocks have been experiencing lately. Silver and gold, he noted, are likely to decline amid receding demand for an inflation hedge.

Spivak explained that concerns about global economic growth are slowly replacing the Eurozone panic that had gripped the markets. The general election in Greece resulted in a pro-bailout outcome, and Europe is now expected to sink into recession. On the other hand, a new Bloomberg survey shows that Asia is seeing its slowest economic growth for the past three years. It comes as no surprise, then, that traders are looking to North America, and to the United States in particular, to balance out the global economic woes.

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!m[](/uploads/story/162/thumbs/pic1_inline.png)The Fed this week took a modest step to ease monetary policy while waiting to see whether Europe can get a handle on its debt crisis and whether a slowing jobs market in the US is a sign of a serious weakening of the economy.
According to Reuters, although Fed Chairman Ben Bernanke admitted that the US central bank has “considerable scope to do more” and is willing and ready to take action if need be, the struggling labour market in the country is still the key focus. Bernanke’s more skeptical colleagues showed reluctance to commit to more aggressive action, the news agency said.

Reuters noted that the Fed has marked down its outlook for inflation, slashed its projections for GDP growth for 2012 and 2013 and claimed it no longer expects the unemployment rate to drop below 8 percent this year. Fed officials also warned of “significant downside risks to the economic outlook,” including Europe’s sovereign debt crisis and likely fiscal tightening in the US.

In addition, Spivak also asserted that US Treasury yields have been near record lows, which, he explained, means that there is little hope that increased quantitative easing would generate a substantial increase in lending. In a statement, Ben Bernanke also deemed it “very reckless” to pursue a pickup in economic activity at the expense of higher inflation.

Spivak said that recent US economic data has repeatedly disappointed over the past couple of months, which indicates that implementing the so-called “Operation Twist” may seem more appropriate. “Operation Twist” is a Fed scheme of exchanging short-term securities for longer-term ones. The goal is to bring down long-term interest rates, making it easier for businesses and households to borrow money.
Spivak said that with markets are pining for accommodation, investors might be disappointed as growth-geared copper and crude oil take a dip. Gold and silver are also at risk, Spivak warned, since demand for precious metals as a store-of-value hedge against dilution of paper currencies is decreasing.


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