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THE FUTURES FILE, A COLUMN BY WALT BREITINGER

Fed’s words melt metals

Friday, June 21, 2013 - 2:36 pm

The U.S. 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 stimulus 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. Over 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 over $100 per ounce, down 7.6 percent, and silver sliding as much as $2.38 per ounce, down 11 percent, in the aftermath. Both markets fell to the lowest price in over two years.

As of midday Friday, gold for June delivery was worth $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, down 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 worth $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.

Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso.