Since the Fed announced that it was going to buy Treasury securities directly, commodity prices have moved higher. The GSCI index is up 3 percent since the move mostly driven by an increase in oil prices and gold. Hard assets have value in a recession if fiat money growth explodes. Because the world price of oil is in dollars, the real value of oil prices has not had as large a move. Dollar declines will usually see an up move in oil prices related to the pricing effect as well as changes in fundamentals.
The size of this up move is small versus the huge decline in commodities over the last nine months. The GSCI has fallen from over 10000 to 3666. Industrial production is still declining at an alarming rate as noted by EU industrial production numbers which declined more than 17% YOY. The GSCI is still down for the year and it will likely take more than the current Fed announcement and action to get a sustained rally, but investors are smart enough to sniff inflation and are looking for alternative investments as inflation hedge. This may be a little early bu the size of the potential inflation problem is significant.
The size of this up move is small versus the huge decline in commodities over the last nine months. The GSCI has fallen from over 10000 to 3666. Industrial production is still declining at an alarming rate as noted by EU industrial production numbers which declined more than 17% YOY. The GSCI is still down for the year and it will likely take more than the current Fed announcement and action to get a sustained rally, but investors are smart enough to sniff inflation and are looking for alternative investments as inflation hedge. This may be a little early bu the size of the potential inflation problem is significant.
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