Bloomberg News

Commodities Slump on ‘Modest Disappointment’ After Fed Decision

June 20, 2012

Commodities fell, heading for the biggest decline since June 1, amid disappointment from some investors that the Federal Reserve didn’t do more to stimulate economic growth.

The central bank said today it will extend its monetary stimulus further while declining to expand its asset purchases to bolster the economy. The Standard & Poor’s GSCI Spot Index of 24 commodities slumped 1.8 percent to 575.51 at 1:40 p.m. in New York. A close at that level would mark the biggest loss since June 1. Coffee, crude oil, cotton and cocoa led the declines. Gold headed for the biggest loss in almost two weeks.

Fed policy makers said they will expand a program to replace short-term bonds with longer term debt by $267 billion through the end of the year in a move to lower unemployment and spur expansion. The central bank purchased $2.3 trillion in assets through June 2011 in two rounds known as quantitative easing.

“The sell-off here is modest disappointment that they didn’t launch into full blown QE3,” Anthony Valeri, a market strategist in San Diego at LPL Financial, which oversees $350 billion, said in a telephone interview. “So, you’re seeing gold and oil down a little bit further than expected.”

Gold, oil

Gold futures for August delivery fell 0.6 percent to $1,614.20 an ounce on the Comex in New York. A close at that level would be the biggest slide for a most-active contract since June 7.

Crude oil for July delivery fell 3 percent to $81.50 a barrel on the New York Mercantile Exchange. The July contract expires at the close of trading today. The more actively traded August contract dropped 2.9 percent to $81.87.

Policy makers led by Chairman Ben S. Bernanke left unchanged their view that economic conditions will probably warrant keeping interest rates “exceptionally low” at least through late 2014. The FOMC has kept the main interest rate in a range of zero to 0.25 percent since December 2008.

Additional monetary easing is still “on the table,” according to Valeri who said he thinks there’s a 60 percent probability of QE3 over the course of 2012.

The Fed said in the statement today that it is “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labor market conditions in a context of price stability.”

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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