Fed Easing of Monetary Policy Metals Price Increases On the Way

Just yesterday Stuart penned an analysis of the effects of the US’s new loosened monetary policy. He suggested that metals prices would increase as speculators begin buying up commodities not due to actual inflation mind you but due to the fear of inflation.   And that is precisely what happened only one day after the Fed’s announcement according to this Forbes article.

According to the article, the Shanghai Composite index ended the day up by 15.33 points, or 0.7% at 2,281.09 points, led by nonferrous metal producers and oil stocks, after the recent surge in global crude oil futures. Mining firms also posted gains. Now readers will remind me that one day’s data does not a trend make. And we couldn’t agree more. However, the combination of the easing of monetary policy and decline in the value of the dollar will have big ramifications to all metals buyers. Not surprisingly, the Reuters-Jeffries CRB index, a global commodities index, reached a five week high after the announcement.

The metals most likely to be impacted by this shift in asset allocation include both copper and aluminum.   Gold will also see price increases (and has in recent days, despite Friday’s modest decline). But we also wear a hat of caution. Industrial demand remains weak ” in Europe, in China and in the US for both copper and aluminum. Moreover, inventory levels are still toward the top of their yearly highs as shown below for copper:

And this one for aluminum:

Though we don’t believe these upticks in price are the start of the big bull if you will, now is a great time to evaluate your long term purchasing plans for many of the base metals. We also urge companies to develop their sourcing forecasts to take advantage of current cost savings opportunities.

–Lisa Reisman

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