QE3 tapering round the corner, how will it impact commodities?

New York (Dec 10)   Analysts pointed out that should Fed tapering begin soon it could have major impact on markets including commodities and equities. Metals and energy complex may be more impacted than others with gold and silver likely to suffer more in the short run. In the near term, markets may attach more importance to Fed tapering offsetting the more solid fundamentals emerging from China imports and commodity demand, they added. 

Markets are now more speculative than ever about the impending QE3 tapering program that would reduce the $85 bn asset purchases by the US Federal Reserve as positive trends have emerged in the US economy and the stimulus measures seems to have far outlived its usefulness, according to experts.

The Fed tapering program which many expect may be announced in December or early 2014 could have wide ranging impact on equities and commodities market, analysts said.

Already base metals and precious metals are trading in tight range as tapering is now more important in the near term.

Meanwhile, Richard Fisher, Dallas Federal Bank President said on Monday that the time has come for taper. The Federal Open Market Committee (FoMC) meet scheduled for December 17-18 could give some hints on the policy direction of the Fed.

Fischer pointed out that the cost of Fed's US $85 bn monthly asset purchasing programme far exceeds its benefits. He feels that there is enough liquidity in the system which is perhaps not shared by all his colleagues who feel QE had brought unemployment levels down to 7% and inflation is still below targetted 2%.

When Fed first hinted of tapering in May and June, investors pushed up interest rates threatening to slow a fragile recovery and hence had to postpone it beyond September.

The US jobs data showed that jobless data hit a five year low of 7%, non farm payrolls rose 203,000 in November, extending the trend in October. Economists at TD Securities in New York told Reutes that latest round of positive data paves the way for a tapering announcement in January. The decline in unemployment rate has come even as the participation rate, the share of working-age Americans who either hve a job or are looking for one-bounced back from October's 35-1/2 year low.

Analysts pointed out that should Fed tapering begin soon it could have major impact on markets including commodities and equities. Metals and energy complex may be more impacted than others with gold and silver likely to suffer more in the short run. In the near term, markets may attach more importance to Fed tapering offsetting the more solid fundamentals emerging from China imports and commodity demand, they added.

Hedge funds and money managers have raised their bearish bets on gold futures and options, according to data provided by Commodity Futurs Trading Commission (CFTC). In the week ending December 3, data showed gross short positions rose while net shorts in copper were trimmed.