Wednesday, September 16, 2015

What Are Commodities Saying About Tomorrow's FOMC Outcome?

Gold, oil, copper and the broader measure CRB index are all moving dramatically higher today.  Many of these contracts (index) are jumping above resistance trend line. 

Conventional theory is that if the Fed DOES NOT Hike tomorrow, asset prices will trend higher given the excess liquidity in the system.  Less conventionally, I suspect that if the Fed DOES HIKE tomorrow, then as their successive policy directive statements have indicated, they are ‘reasonably confident that inflation will move back to its 2 percent objective over the medium term.’  If the Fed is finally confident that inflation will move back to 2 percent in the medium term, I think there is a greater than mild chance that they will overshoot their inflation target. 

In brief, this is probably not the time to be short commodities. 





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