The Federal Reserve surprised markets on Wednesday with an announcement it was not changing anything.
The Fed reported it will continue buying $85 billion of bonds per month in an effort to stimulate the economy by keeping interest rates low. This came as a surprise to most investors who had been expecting the Fed to reduce the purchases by $10 billion. Instead, the “quantitative easing” program (QE3) is continuing in full swing until the Fed sees more evidence of an improving economy.
The immediate response to this news was swift rallies in gold, stocks, bonds, and foreign currencies, all of which benefit from lower U.S. interest rates. Gold had the largest gain, rallying more than $55 per ounce (4.2 percent) to $1,367 on Wednesday. By the end of the week, the yellow metal had given up half of its gain, trading Friday for $1,338.
Coffee Grinds Lower
Coffee prices fell to $1.11 per pound this week, the lowest price in over four years. Prices have been in decline as U.S. inventories of coffee swell to levels not seen since 2009. In addition to already large inventories, large crops could be hitting the global market soon. The world’s largest coffee producer, Brazil, is benefiting from rains during the coffee trees’ flowering stage that should boost production of next year’s crop. Meanwhile, Vietnam is beginning its harvest of the world’s second largest crop, which could put near-term pressure on prices.
For now, baristas and home brewers should benefit from lower prices, which are down 64 percent from the high of $3.06 made in 2011.
Natural Gas Rises
Natural gas prices lifted to a two-month high this week on news that inventories are currently 5 percent lower than last year.
Unseasonably warm weather in September has increased demand for air conditioning and electricity, much of which is ultimately generated by natural gas. This strong demand has helped to keep natural gas inventories lower, helping prices rise.
Other traders are eying weather in the Gulf of Mexico, home to 5 percent of U.S. natural gas production. Although the Gulf of Mexico has largely been spared from significant damage this hurricane season, there is still potential for tropical storms to affect the offshore oil and natural gas production rigs scattered throughout the Gulf.
As of midday Friday, natural gas for delivery in October was trading for $3.67.