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Fed tapering and commodities

London, 19 September 2013

As the Fed considers announces the delay of QE tapering Edith Southammakosane, senior analyst at ETF Securities, explains what this means for commodities. 

“The Fed’s decision to maintain its existing policy surprised the audience yesterday as the market expected tapering to start this month. Most asset classes immediately reacted positively to the announcement. The S&P 500 rallied nearly 1% while Eurostoxx 50 jumped 1.3%. Commodity prices also saw immediate gains, with the price of gold surging 3.8% and the price of copper gaining 1.2%.

“Although the financial market has positively welcomed yesterday FOMC’s outcome, the decision to taper is only postponed for later this year depending on the strength of activity. However, we believe that tapering itself should have limited impact on commodity prices as the Fed’s bond-buying stimulus will remain at a historically high level. Indeed, the tapering of bond purchases is in response to the on-going recovery of the US economy, and alongside robust Chinese demand and an improvement in European conditions, should continue to support demand for cyclical commodities such as industrial metals or energy.”

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