Gold, oil, commodities plummet after "less than expected" Fed rate cut

Gold plunged the most since June 2006, leading a decline in commodity prices, including soybeans, wheat, cocoa and crude oil, on speculation the slump in the dollar will end as the Federal Reserve eases the pace of interest-rate reductions. The Fed had cut the overnight-lending rate 75 basis points to 2.25% in a bid to avert a U.S. recession. Analysts had forecast a bigger cut to 2%, an expectation that helped spur commodities to record highs as investors sought a hedge against inflation by stocking up on raw materials. "This is a knee-jerk reaction to the fact that the Fed only lowered by 75 basis points," said Michael Pento, a senior market strategist at Delta Global Advisors.

The U.S. Dollar Index, down 5.9% this year, rose 0.8%, the biggest gain in almost six weeks. The yen and franc also rose against major currencies on speculation investors were exiting carry-trade purchases of commodities that were financed with cheap loans from Japan and Switzerland. "It's so much about leverage," said John McCarthy, director of currency trading at ING Financial Markets LLC in New York. Traders "shorted the yen and franc to buy commodities."

While the Fed said yesterday [18 Mar 2008] it expects a "leveling-out" of commodity prices, some investors are betting inflation will accelerate because of lower borrowing costs. "Inflation will go through the roof," investor Jim Rogers, who predicted the start of the commodities rally in 1999, said in an interview on Bloomberg Television.

- This development would have been hilarious if it didn't involve real money. Oh, the Fed does a rate cut of "only" 3/4-point, less than the full 1 percent cut that people were expecting, commodities of all kinds have a massive sell-off, and Ben "Helicopter" Bernanke is seen as some sort of hero on Wall Street for "taking care" of the inflation problem once and for all by "deflating the commodity bubble".

Please. They might as well have hung out a "Gold On Sale At 10% Discount" banner. I promptly logged in and bought for both myself and my investment fund a few ounces worth of the Gold ETF, GLD. I did say that gold support levels were $1000, $950, $900, $850, and $800, didn't I? Support levels are for buying, and buy we did. After the Good Friday weekend, as I write this, oil is back up over $101, and gold is back up over $920.

You can look at it this way. It's like the Titanic was three-quarters flooded and many of the people on board started saying, "it's not sunk yet, please stay", and they continued dancing, and the music continued playing. Well, the dollar is the Titanic. Get the hell out.

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