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FOMC to Turn Tide for Market
Pinnacle Digest writes: In Gary Tanashian’s latest article he explains how the FOMC’s decision to implement QE3 last month brought a surge in bullish optimism to the market and more specifically, precious metals. According to Tanashian, that surge was unsustainable.
October has always been a tough month for the market as earnings have routinely missed this time of year. Couple that with the decelerating US economy, and the markets are in a vulnerable position.
Tanashian stated “Of course, one look at the Copper-Gold ratio tells that story well enough and has been telling that story since the spring time. Gold is a counter-cyclical asset that benefits when policy makers are pressured to attempt to compromise their currencies in service to economic growth. Copper is a cyclical commodity that goes in line with economic growth.”
Tanashian notes that last year, in Q4 when most investors were extremely fearful, the markets rallied and climbed the wall of worry. As we all know, this is a normal occurrence when sentiment shifts overly negative. But what about this year? Investors are once again overly negative, so will we get a rally to wrap up 2012?
“Well this time our work has been following a decelerating economy and the inflationary policy used to battle it. Inflation is not a good thing even though it’s promotion can help manufacture temporary bullish environments. Also, within an inflationary regime some assets will respond better than others. Hence the initial ramp in the precious metals that is now being corrected.”
With the FOMC meeting to discuss rates today, it will be interesting to see if any policy is changed. Luckily for the policy makers, deflation has taken hold of commodities over the last few weeks, which may give them further room for easing (despite rates already near zero and QE3 well established).
Tanashian urges investors not to make the same mistake as last year by writing off the markets in the midst of an overly bearish period. There is a likely possibility we could see a sharp rebound heading into November.
Click here to read full report.