Market Report: Federal Reserve Inflates Value of Commodities

Despite the fact that Fed Chairman Ben Bernanke said that the Fed had their eye on the dollar and that they would support the dollar if necessary, the message the market got was low rates for the foreseeable future.

You would think that if a Fed Chairman ever talked about the dollar the market would take it seriously. Well the market did for a brief moment. Yet it seemed that the mention was in passing and made it seem as if the Fed was unconcerned about the state of the dollar, so the market took it as a green light to keep on buying commodities. Still the volume seems to suggest that many people are missing out on the move.

Many retail investors zig when the market zags and it seems retail investors are shying away from some big moves as the economy takes its toll on the small investors and their current aversion to risk. Obviously when the profit potential is as large as it has been the risk of course is just a large. And that lack of additional volume means that whatever move is made it's going to be potentially larger so it is important to get on the right side.

Of course what we have going on here is historic. You have the Federal Reserve basically inflating the value of commodities on purpose. You have a coordinated effort to fight deflation by creating some commodity price inflation. The Fed seems happy with the state of things and keeps telling us that they are unconcerned. Bernanke seems unconcerned, so why should commodity bulls worry? The Fed is keeping the game going so buy the breaks and hold on.

Unlike gold and silver, oil is a bit more complicated. Yes it will react to big changes in the dollar yet it still seems to be held back by huge oversupply. We still have a glut of crude and OPEC may add to the glut as they fear that higher prices may make the glut even larger by killing demand than more production might. In other words, oil is still in a range as gold continues to trend higher.

Big Banks you are on your own! Jean Claude Trichet says that democracies won't be bailing out the banking sector again. So I guess what he is saying is that the next bailout will be China's responsibility.

Russia says it is premature to say that the Irainan nuke talks have failed. That is good to know, I guess.

Looking for deflation? The Energy Information Agency reported that the national average retail price of regular gasoline fell 3.7 cents a gallon to $2.629 a gallon last week. That is the second week in a row that prices dropped and hit their lowest level since Oct. 19. Gasoline prices fallen 6.5c in the last two weeks. So now you can buy that big turkey!


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