What Does A Central Bank Policy U-Turn Mean For Commodity Prices?

Phil Carr
Updated: Oct 3, 2022, 11:54 GMT+00:00

Historically, the final quarter has always been considered to be one of the most lucrative periods of the year for commodity traders. With an action-​packed calendar of economic events yet to come – once again, this year should be no exception!

Gold FX Empire

In this article:

Rate Hikes Not Seen Since the 1980s to Fight Inflation

There is no denying that the global markets have entered an exciting new phase in monetary policy as central bankers across the world ramped up their fight against rapidly surging inflation.

After being criticized for being slow to recognize inflation, the Federal Reserve and its central-banking peers have embarked on their most aggressive series of rate hikes since the 1980s.

As a result, there’s really nothing historical you can point to for what’s going on in markets today – we are seeing multiple standard deviation moves across every asset class – presenting savvy traders with back to back money-making opportunities, almost on a daily basis.

Aggressive moves specifically from the Fed in recent months have dramatically strengthened the dollar – raising concerns among leading Wall Street economists that the dollar will be the next asset bubble to burst.

According to Morgan Stanley – “such U.S dollar strength has historically always ended in some kind of financial or economic crisis” and that’s the exact direction we are heading in again.

In fact, it was against that strong dollar backdrop that the Bank of England was forced to revert back to unprecedented “Quantitative Easing” measures, to avert a full-blown global financial meltdown.

The Bank of England Went Back to QE Last Week

In one of the most major U-turns in monetary policy, ever seen – The Bank of England went into full financial crisis mode last week, rushing out an announcement that the central bank was restarting its money-printing presses at “whatever scale is necessary” – officially confirming that “QE To Infinity” was back!

The UK bank’s extraordinary new round of quantitative easing will involve suspended a program to sell gilts – part of an effort to get rapidly surging inflation under control – and instead revert to buying long-dated bonds at a whopping rate equivalent to over $5.3 billion dollars a day.

Historical Events

Central bank interventions of this scale have not been seen since the Wall Street Crash in 1929, the Black Monday stock market collapse in 1987, the Global Financial Crisis in 2008 and more recently, the 2020 Pandemic.

Impact on Commodity Prices

The Bank of England’s announcement sent a long-list of commodities from Aluminium, Copper, Palladium, Platinum, Gold, Silver, Lumber, Oil and Natural Gas prices surging to multi-month highs – registering their biggest one-day move this year.

The bullish momentum also split over into Gold, Silver and other precious metals priced In British Pounds – sending them blasting through all-time record highs.

The Bank of England’s actions represent the first big intervention from a G7 central bank in this monetary cycle to avert a global financial crisis – And it may not be the last!

With the Fed and ECB hiking aggressively into a weakening economy – the big question is who will be next to switch on their money printing machines and revert back to quantitative easing again?

Only time will tell, however, the one thing we do know is that extraordinary times create extraordinary opportunities and right now, this market is a traders’ paradise!

Commodity Price Forecast Video for the Week of October 3 – 7, 2022

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

About the Author

Phil Carrcontributor

Phil Carr is co-founder and the Head of Trading at The Gold & Silver Club, an international Commodities Trading, Research and Data-Intelligence firm.

Did you find this article useful?