As Federal Reserve Chairman Ben Bernanke testified before Congress on Wednesday, many investors expected that he would announce a new round of stimulus, a measure that many would have interpreted as "giving the green light" to inflation. Instead, Mr. Bernanke suggested that the U.S. economy was currently on the mend and that the Federal Reserve's inflation outlook was "subdued."
Many market participants had previously bought commodities, especially precious metals, expecting more inflationary measures from the Fed in the future. Caught off-guard by the Chairman's muted tones, investors adopted a "sell now and ask questions later" approach.
Gold and silver were hardest hit by the announcement, falling over $100 per ounce and nearly $4 per ounce, respectively. Much of the decline occurred over the course of only an hour. By Friday, the free-fall had calmed down, with gold for April delivery trading at $1,710 per ounce and May silver near $35 per ounce.
Gas Creeps Higher
Gasoline prices have continued to surge, reaching record high prices for this time of year. April gasoline futures, which represent the wholesale price of gasoline, without taxes or other expenses included, pushed over $3.38 per gallon on Thursday afternoon. Nonetheless, consumers seem to be managing the recent high prices, as new automobile purchases hit their highest level in four years.
Despite the recent strength in the energy markets, some analysts have opined that high prices are being driven primarily by supply fears, rather than strong demand. If concerns surrounding oil production and transportation die down, focus could return to European economic problems and tepid growth in the United States, possibly pushing prices lower. As of midday Friday, gasoline for April delivery was trading near $3.28 per gallon.
Beans Gain on Corn
Soybeans continued to rally this week, finding additional support after continued announcements of sizable Chinese soybean purchases. As prices rise in early spring, some farmers can still make a last-minute switch, choosing to plant corn or soybeans, depending on the profitability of each crop. As of midday Friday, soybeans for March delivery were hovering near a five-month high at $13.25, while March corn was trading for $6.50 per bushel, a six-week high.