Changes In Federal Reserve, Other Central Banks' Monetary Policies Beneficial For Metals Markets
(Kitco News) - Many world commodity markets had seen downward price pressure the past several months due to demand concerns that stemmed from perceptions of slowing global economic growth and the prolonged trade dispute between the U.S. and China-the two largest economies on the planet. However, there are macro-economic developments that should work in favor of the raw commodity bulls, including the metals, for the rest of 2019, and possibly beyond.
Late in 2018 there was a swift and surprising shift in the monetary policies of most of the major central banks of the world. After months of speculation that the biggest world economies would see their growth prospects significantly improved, led by a surging U.S. economy, notions set in during the fourth quarter of 2018 that global economic growth would not be so robust and that inflation would remain very tame.
Just a coincidence or not, the abrupt shift in U.S. monetary policy to a more accommodative mode occurred shortly after President Donald Trump admonished the Federal Reserve and Chairman Jerome Powell for being too quick to raise U.S. interest rates.
The change to an easier money policy in the U.S. has been echoed by similar moves from China and other Asian central banks. The world's third-largest economy, the European Union, has seen its European Central Bank back off on its gradual deceleration of quantitative easing of its monetary policy. In fact, there is a growing consensus the ECB will reintroduce monetary stimulus measures in the next few months as the Euro zone economy remains anemic.
More accommodative central banks means more liquidity in the world financial system (more money floating around) and lower interest rates for borrowing consumers. That suggests more demand for products and services, including raw commodities.
Just this week gold prices pushed to a 10-month high, crude oil prices notched a three-month high and copper prices scored a five-month high. While some commodity market prices continue to languish at lower levels (due in part to the U.S.-China trade dispute) the more accommodative money policies from the central banks will likely begin to push those prices higher, too.
With the inflation rates of most of the major world economies running right around 2.0 percent, or just below, the central bankers reckon they can keep the money-printing presses humming until inflationary pressures start to show up. This is good news for the raw commodity market bulls for at least the next several months and likely longer.