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Interest Rates Move HigherPosted Friday, March 16, 2012, at 3:30 PM
Bond-market investors streamed to the exits as the country's most powerful bankers upgraded their prediction for U.S. economic growth from "modest" to "moderate." The Federal Open Market Committee, founded in 1933, is responsible for the Fed's buying and selling of United States Treasuries. Bond investors divine what may happen to interest rates based on subtle linguistic clues contained in FOMC reports.
Interpreting the FOMC's words as a sign that the Fed may stop propping up the bond market with controversial bond buy-back programs, investors dumped bonds and bought equities.
This week, the 30-year bond interest rate, which moves inversely to the value of bonds, jumped up by 0.15%, trading Friday near 3.40%. Meanwhile, the S&P 500, encouraged by the FOMC's optimism, rose more than two percent on the week.
Gold & Silver Slide
Partaking in some divination of their own, precious metals investors interpreted the FOMC's statement as less inflationary than had been hoped. Gold and silver futures took a big tumble after the FOMC announcement. This week, gold fell to a two-month low at $1634 per ounce, and silver slipped to $31.63 per ounce, down fifteen percent since late February.
Copper, because of its industrial uses and correlation to the general economy, fared better than the precious metals, closing slightly higher on the week.
Coffee Market Watered Down
Coffee prices continue to weaken, falling to an eighteen-month low on Monday. A flood of low-quality Brazilian and Vietnamese coffee has been weighing on the market, causing prices to drop under $1.82 per pound this week. Those two countries are the world's largest producers of the low-grade robusta variety, which is often relegated for use in instant coffee.
Some analysts warn that prices may not stay depressed for long, as low prices could cause a cutback in global coffee production, eventually leading to a shortage and sharply higher prices over the next few years. For now, prices are forty percent lower than they were last spring, which should bring a smile to java drinkers' lips.
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Alex Breitinger, a 2009 graduate of DePauw University, is a commodity futures broker with Breitinger & Sons, LLC in Valparaiso. He can be reached at 800-411-FUTURES (3888) or online at www.indianafutures.com.