The Fed Decision's Big Impact On Gold And Oil Prices

London (June 18)  Well, this past week Janet Yellen and the Federal Reserve did what was very well advertised, and that was raising rates by another 0.25%. Certainly not a big deal. Basically, all market analysts and participants were certainly expecting that.

What did come out yesterday, I think, however, is practically monumental and it's historic. We're all familiar with what happened some eight or nine years ago and that was something called QE. "Quantitative Easing", a way to actually drive interest rates down to zero and, in some cases, below zero.

What happened yesterday was the announcement of finally reducing the Fed's balance sheet, a balance sheet that has ballooned up to $3.5 trillion. The plan is to reduce this balance sheet by some $600 billion a year over the next few years and bringing it down to the neighborhood of $1 trillion.

It's so interesting some several years ago, the discussion of Quantitative Easing and what it was going to do for economies and what it was going to do for inflation. Certainly, people who have never invested in gold, never bought crude oil, and never did anything like this all of a sudden became mainstay.

The idea of owning gold or owning oil and being part of a portfolio and a storage of wealth definitely had mixed results over the last eight or nine years. Sitting at my desk, I think we just turned the page on that entire idea. Will the gold market ever rally again? Of course, it will. Will crude oil prices ever get $2 and $3 increases from time to time? Of course, they will as well.

However, they're gonna start doing it now on their own accord based on fundamentals. One of the fundamentals for oil to rally now is going to be "we're consuming more than we're producing". Certainly not the case right now; we think that oil prices are going to languish in the 40s here for quite some time. As we go into the third and fourth quarter of this year, we really see oil prices having a difficult time getting much higher than where they are right now. As a matter of fact, they could be a few dollars lower, would probably be better idea.

Source: SeekingAlpha