Gold and silver soars and oil sinks in what can be best described as a quantitative easing conundrum. Many people were confused how gold might rally after briefly dipping in bear market territory after the dollar rallied for a record 14 days. The day after the Fed minutes showed that several Fed officials would be open to more economic stimulus if the economy turned worse, all of a sudden it seemed that indeed thinks look worse.
Against a backdrop of Europe coming apart at the seams somehow contraction in the Philly Fed Manufacturing Index and Leading Economic Indicators that are leading us in the wrong direction the odds of quantitative easing are rising. Dow Jones’ Howard Packowitz’ story , “The Wizard of Fed Fund Future Odds” showed that Fed-funds futures traders now believe that the FOMC will wait two years or longer before it begins raising the funds rate. Packowitz pointed out that trading volume has been heavier than usual for longer-dated contracts as July 2014 Fed-fund futures price show a 40% chance for the Fed to boost the rate to 0.5% by then, down from a 44% chance at Wednesday's settlement. November '14 fed-funds see 88% chance for a 0.5% rate, down from a 96% chance at Wednesday's settlement.
Yet while those odds rise, the dollar rises as it is clear that it won’t just be the United States that will have to come to the printing presses. The pressure on governments around the globe are clear in the currency differentials as the British Pound and Euro falls and yen rises. China and other markets may have to stimulate. Gold now is pricing in easing.
The Brent Crude WTI spread came in as Japan announced the restart of some nuclear plants and the historic reversal of the Seaway pipeline is ready to begin!