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Commodities: One Day At A Time For The U.S. Federal Reserve


  • The April meeting provided no forward guidance.
  • GDP fell by 4.8% in Q1.
  • Unemployment is over 30 million and climbing.
  • The Fed has unlimited liquidity and is ready to use it.
  • Inflation in 2021-2022 is on the horizon- Scale-down accumulation of commodity assets.
  • Looking for more stock ideas like this one? Get them exclusively at Hecht Commodity Report. Get started today »

The US Federal Reserve is the leading central bank in the world. In 2008, the Fed cut interest rates to zero and developed quantitative easing to stimulate the global economy and avoid economic disaster. Other central banks followed with policies that encouraged borrowing and spending and inhibited saving. The wave of liquidity that followed the 2008 crisis led to a bull market in commodities that took prices to multiyear, and in some cases, record highs in 2011.

Twelve years later, after increasing rates from zero percent and reducing its balance sheet, the outbreak of Coronavirus caused the Fed to unleash a more substantial tidal wave of liquidity on markets. Short-term rates in the US are back at zero, and the central banks are pushing quantitative easing to new and unprecedented levels. The price tag for the global pandemic will be massive in the years to come. The initial impact on commodity prices is much the same as in 2008 as a deflationary spiral hit many members of the asset class. The actions of the central bank could set the stage for another period of price appreciation in the raw material markets in the months and years ahead. The Invesco DB Commodity Index Tracking Fund (NYSEARCA:DBC) holds a diversified portfolio of commodity futures contracts. On April 23, in an article on Seeking Alpha, I explain how the significant weighting of the DBC EETF product to energy pushed the price lower and that the price action in crude oil was a warning for all ETF/ETN products. However, DBC has exposure to a diversified portfolio of commodities including energy products. The path of monetary policy is supportive for raw material prices in the long run.

The April meeting provided no forward guidance

Last week, the Federal Open Market Committee conducted its April meeting under

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This article was written by

Andrew Hecht profile picture
Weekly commodities commentary and calls, from a Wall Street veteran
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.

Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.

Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.

Today, Andy remains in close contact with sources around the world and his network of traders.

“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”

His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.

Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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