Will QE3 inflate iron ore?

Here is yesterday’s iron ore price action:

And the charts:

Definately feeling like a dead cat today.

More interesting, however, is the question of whether bulk commodites will enjoy a boost from the monetary push coming from QE3. It has not been easy to judge in the past whether this is the case. My feeling is not much owing to immature derivative markets and contract pricing which prevent speculators from distorting pricing overly, unlike many other listed commodities. And so far, we haven’t seen any bounce in advance of QE like other markets. Of course, QE2 did make it harder for China to control its own monetary policy though hot money inflows so to the extent that that boosted growth and demand then the bulks are effected.

But we’re entering an interesting experiment. With bulk prices clearly weak with further downside probable on fundmentals, we’ll get a clearer guide to the effects of monetary inflation.

As I say, I expect a muted response which is doubly bad news for Australia as the dollar will be under upwards pressure but you never know!

David Llewellyn-Smith
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  1. It’s hard to say. We’ve got OMT from Draghi, and now QE3 from Ben, and like OMT it’s open ended. Open mouth stimulus from PBoC, but still the commodities pile up in China.

    I don’t see a good outcome yet. I hope I’m wrong.

  2. Our Swan must be hoping that the PBOC will undertake the unconventional monetary policy of monetizing iron ore…