On Friday, crucial economic data from the United States was released. While this data is good news for the United States economy, it proved to be bad news for commodities. Today, we'll talk about the news that was released, how it affects commodities, what we can expect to see moving forward and how binary options traders can turn the trends into profits.
US Jobs Blow Away All Expectations
One of the big concerns with the US economy has been the US jobs report. In August and September, the report showed troubling times for the economy, which played a big role in the reason the Federal Reserve didn't increase its interest rate in October. However, on Friday, the October jobs report proved to be incredibly positive. In the month, analysts expected to see between 160,000 and 180,000 new jobs added to the economy. However, Friday's report showed that 271,000 jobs were added to the economy in the month.
The strong jobs growth is a great sign for the United States economy and just what the Federal Reserve has been looking for. Since late last year, the Fed has had a plan to increase its interest rate by the end of 2015. However, economic weakness in the country has caused delay after delay on the rate hike. Nonetheless, the positive October jobs report is likely the nail in the coffin for low rates. Now, the overwhelming opinion among economists and analysts is that the Fed is likely to raise rates in December.
Why Does This Have Anything To Do With Commodities
When the Federal Reserve raises its interest rate, what it's really doing is adding value to the United States dollar. With higher interest rates, investors see more upside in the currency and demand for the currency rises. However, it's important to remember that the USD is the currency that's used to price most commodities. This means that when the value of the USD rises, the cost of commodities in nations outside of the United States will rise as well. The higher cost of commodities will lead to declines in demand and as the law of supply and demand tells us, the price of commodities will ultimately fall.
What We Can Expect To See Moving Forward
In the short term, commodities are likely to either trade flat or slightly down. However, we're going to see big declines in the values of commodities like gold, silver and oil in December when the interest rate is increased. Over a lengthy period of time, around 6 months to a year, the values will balance out and we will start to see growth again. Nonetheless, when December hits, get ready for declines.
How Binary Options Traders Can Take Advantage Of The Trends
While declining commodity values are going to be a bad thing for some investors, for binary options traders, this is great news. Knowing that commodities are going to edge downward over a relatively long period of time, binary options traders have an incredible opportunity. To turn the trends into profits, they simply need to purchase put options in order to ride the trends down. Make sure to check our latest financial news.
What Do You Think?
Where do you think commodities are headed and why? Let us know your opinion in the comments below!
[Image Courtesy of Globe Views]