Lost in QE! In what could be one of the biggest retreats since Napoleon left Russia, when it came down to it, the Fed just could not pull the trigger. The Fed shook the investment world in a historic back peddling that will forever question the reliability of forward guidance. The Fed felt it could not act in the face of rising interest rates because. despite what they thought, tapering is indeed tightening. The Fed realized that the economy is not strong enough to face rising rates and now the economy will have to be a lot stronger than it is before they can even think about cutting back on bond purchases.
They also have put in a commodity price floor. The Fed is finding out that that quantitative easing is like being at the Hotel California. You can check out anytime you like but you can never leave. Now it will be more difficult for the Fed to convey a taper message in the future. Even if they did, how could you believe them?
You can't! You saw the reaction immediately in gold (COMEX:GCZ13) and silver (COMEX:SIZ13), markets that bought hook line and sinker the Feds narrative! Instead of acting like a precious metal, they were acting like interest rate futures. Now with QE infinity, both gold and silver should soar to new highs as the market must fear the trap that the Fed is in. When you are addicted to drugs, it is difficult to go cold turkey, and in this case it seems you can't even wean yourself off.
Industrial metals like platinum, palladium and copper will soar as it will be risk-on as hot money will prop up the beleaguered emerging markets that seemed to be collapsing without the support of our friends at the Fed.
Even oil (NYMEX:CLV13) and products went commodity crazy! Of course they also had help from a bullish EIA report! The U.S. continues to export gas and diesel fuel at a record pace!
Bottom line – The Fed may be presenting us with another great bull market in commodities. You can't fight the Fed because as I wrote the day after the first QE "I fought the Fed and the Fed won."