Commodities Explode as Printing Presses Warm Up

This Wednesday, even as the newly elected Congress campaigned to cut the budget deficit, the Federal Reserve released its plan to inject another $600 billion into the bond market to stimulate the economy. The long-awaited Fed announcement caused a gigantic rally in the commodity and stock markets.

The Federal Reserve decision to stimulate the economy was driven by the continued high unemployment, which has been hovering just under 10% for over a year. In order to accelerate job growth, the Fed announced that it would buy approximately $600 billion of Treasury bonds over eight months. This stimulus is intended to drive down interest rates and expand the money supply.

The immediate response to the Fed's decision was a rapid jump in commodity prices. In the first 48 hours after the announcement on Wednesday afternoon, silver prices surged $2.79 per ounce (+12%) to new 30-year highs and gold raced $73/oz (+6%) higher to new all-time highs. Meanwhile, crude oil spiked $3 per barrel (+4%) higher as copper jolted 22 cents per pound (+6%) higher to 28-month highs.

Food prices were not immune from the buying frenzy as soybeans climbed 58 cents per bushel (+5%), corn popped 17 cents (+3%) and sugar rushed 2.3 cents per pound higher (+7%).

Although the long-term impacts of the stimulus measures are unknown, many traders and investors believe that the Fed's action will continue to support higher commodity prices. This could occur through healthy demand for raw materials or through inflation spurned on by rapid increases in the money supply.

For individual consumers, the recent price swings will likely translate to higher prices at the pump and the grocery store. Even if they go abroad, American will feel the pinch, as the U.S. Dollar has continued to weaken against foreign currencies, slipping 2% in the last 48 hours.