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Opening Statement from the October 2016 CCPM Forecaster

Originally published on October 2, 2016

As the global economy continues to weaken, we expect commodities pricing to generally follow the same path. Complicating the picture of the recently acknowledged global economic weakness by Wall Street, the IMF and World Bank, are concerns over possible contagion events due to reports of liquidity issues at Deutsche Bank.

As we had anticipated, the Federal Reserve decided not to raise short-term interest rates during its September 20-21 meeting. You should note that in the September 2016 issue of the CCPM Forecaster we stated that we expected commodities to rally if the Federal Reserve failed to raise interest rates during its September meeting. But within two days of the conclusion of this meeting commodities began to sell off. This can be explained by the fact that as is usually the case, investors try to respond to material events in advance, especially if they have a high confidence level in what the outcome of the event will be. As such, investors bought commodities once they felt confident the Federal Reserve would not raise interest rates.

This anticipatory rally ran out of steam once the Federal Reserve announced its decision not to raise rates. It was a typical “buy on the rumor, sell on the news” response (see chart, p.9). A similar situation occurred with gold and silver (see p.36).

It should be noted that we prompted readers to be aware of any rallies prior to the Fed’s decision because these rallies could impact the response by investors once the Fed made its decision…

“Notably, we believe gold and silver could mount a sizable rally if rates are not raised in September. But the magnitude of this possible rally will also depend on how much these metals have rallied prior to the rate decision.”

In the September issue we also reminded readers of the major risks that should be monitored. We have been warning about most of these risks for several years