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Bernanke and the rest of the FOMC met for the final time of 2012 on Wednesday, once again moving markets with their outlook and interventions. This time, Bernanke again offered up new easing measures, matching many economists’ expectations for more bond buying to close out the year.
In this latest meeting, Bernanke announced a new plan to buy up $45 billion a month in long-term Treasury bonds in order to replace Operation Twist. This will be in addition to the roughly $40 billion a month that the bank is already putting into MBS, meaning that the Fed’s commitment to bond buying will fast be approaching one hundred billion a month (read Play 4 Megatrends with These ETFs).
The move also means that the Fed’s balance sheet will have nearly $4 trillion in bonds by this time next year, vastly increasing the central bank’s investment portfolio up from its current level around three trillion. Beyond this, the biggest development was that the Fed set a target unemployment rate for the first time in its history.
Although joblessness has come down in recent months—partially due to people leaving the workforce—it is still unacceptably high to most, and Bernanke appears to be no exception to this rule. The FOMC as a result declared that it will keep short-term rates near zero until the unemployment rate hits 6.5%, a full 120 basis points less than the current official rate of unemployment for the U.S.
While this move to set up targets was welcomed news for those who believe that Bernanke isn’t doing enough to fight unemployment with monetary tools, it also suggested that low rates could be here to stay for even longer, and came as somewhat of a surprise to at least a few market participants.
Stocks initially rose on the Federal Reserve news, but most of the big benchmarks finished the day at breakeven and gave up most of their Fed-induced gains. However, one segment did manage to finish strongly in the green despite the late session slide, the precious metal mining segment (see Precious Metal ETFs 101).
This corner of the equity world clearly benefited from the market assumption of low rates for the foreseeable future and the added inflationary expectations that could be coming down the pike in the years ahead.
With this backdrop, we have highlighted a few of the biggest precious metal mining ETF winners on this Fed meeting for investors looking for some of the few short term beneficiaries of the Fed’s reflationary policies:
Easily the most popular gold mining ETF on the market, GDX focuses in on large cap stocks for its exposure. The ETF added about 2.9% in regular hours—although it slid after hours—while the volume came in slightly above normal, hitting 15.6 million shares (read Three Biggest Mistakes of ETF Investing).
This bump marks a continued mini run for the ETF, as the product had slid significantly since mid September, before finally catching a bottom in early December. Now with more easing measures in the economy, some might be worrying more about the specter of inflation, focusing more assets on this leveraged play on gold.
This ETF, which targets small and mid cap mining companies in the broad gold mining space, was up about 1.9% on high volume. The fund saw a roughly 20% boost in volume during the session, pushing the product to nearly four million shares moving hands on the day (read Time to Buy Junior Gold Mining ETFs?).
Investors should also note that the product has most of its securities denominated in other currencies with just 14% of assets going to U.S. dollar stocks. Canada and Australia dominate, so any dollar moves against these currencies in light of QE4 will also impact GDXJ going forward.
The most popular ETF that zeroes in on silver miners is Global X’s SIL, a product that added about 2.4% on the session. Interestingly though, volume was a bit below normal on the day, although traders did see a spike in interest right around 12:30PM Eastern Time when the Fed released its policy decision (read Are Silver ETFs Back on Track?).
It is also worth pointing out that silver bullion did much better than gold bullion on the day, suggesting that a reflation trade could be focused in on silver for the time being. This makes some sense as not only is silver a hedge, but the product has a wide range of industrial uses so it could benefit no matter what the outcome of Bernanke’s policies are.
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