Hawks v. Doves — The Battle Continues

The Federal Reserve acted the way most of us market watchers expected by leaving interest rates unchanged at 5.25%. In fact, it could be said that Mr. Bernanke and company seemed to provide an accompanying statement about inflation and economic growth that was similar to the one issued by the Fed during the previous month.

The Fed repeated worries about inflation and noted that core inflation readings (the measure that excludes energy and food) "have been elevated." The central bankers also said, "The committee judges that some inflation risks remain."

But the Fed statement also included this verbiage, "Inflation pressures seem likely to moderate over time." This was due no doubt to the recent dip in energy prices and the cumulative effects of the Fed’s previous rate hikes.

My take on all of this news is that if the Fed cracks down on inflation, even raising rates as a next move, then we are going to see a rally in the U.S. dollar, a rise in long-term bonds and a general level of health for a low-inflation environment that will be conducive to both economic growth and stock market gains.

If, however, the Fed becomes too dovish on inflation, it could be the spark that ignites a new bull market in commodities. Right now the Fed is really worried about that 800 lb. gorilla in the room known as the housing market. The Fed does not want that bubble to burst. As a prophylactic measure against widespread economic sickness due to a weak housing market, the Fed just may opt to cut interest rates.

My inclination is that any release of more capital into this market will have an inflationary effect on commodities. Indeed, commodities already are in the nascent stages of a new bull market. I am watching this trend closely and subscribers to my ETF Trader advisory service have been profiting from it.

Let’s take a look at a couple of charts to illustrate the recent trends in two key commodity ETFs.

The first is oil, via the United States Oil fund (USO). As you can see from the chart below, oil prices have plummeted from their August highs of more than $70 a barrel.

After a sharp decline between August and mid-October, oil prices now have begun to climb back. Today, the price of a barrel of light crude broke above $61. Given the volatile nature of oil prices, we could see a big jump in energy prices regardless of any action from the Fed.

I think oil’s next move is going to be up to its short-term, 50-day moving average. The price of oil also could approach its long-term, 200-day moving average. If it happens, you will want to buy into an ETF such as USO, or my favorite energy ETF: the Energy Select Sector SPDR (XLE).

My ETF Trader subscribers already know the profit potential of XLE. Right now, we are sitting on about a 12% gain in just a few short weeks. Energy stocks definitely are on fire right now. If the Fed decides it wants to get a little dovish and lower rates, energy stocks would be fueled further.

Another commodity sector that I really like is the tried-and-true precious metal, gold. Look at a chart below of the streetTRACKS Gold (GLD). The always volatile movement of gold can be seen here in the rollercoaster-like price pattern of this ETF.

After breaking below both its short- and long-term moving averages during September, this ETF basically has formed its bottom. At least technically speaking, this ETF is poised for a big run.

Our analysis shows that an opportunity to buy gold at very attractive levels isn’t far away. With gold’s history of rapid moves in both directions, the investment always is an ideal candidate for people looking to make short-term profits.

The table above basically is my watch list of commodities ETFs for my ETF Trader service. In the past few days, we’ve put subscribers into one of these fast-moving funds that are positioned to profit during the next several weeks.

If you want to know more about how to play the next bull market in commodities, including oil and gold, you need to investigate my ETF Trader service for yourself.

The key to big profits now is just one click away.