Oil breaks $100, but don't expect QE3 boost to lastSeptember 14, 2012: 2:25 PM ET
Fresh stimulus action from the Federal Reserve drove commodity prices sharply higher Friday, but experts say don't expect the QE3-fueled boost to last long.
Crude oil prices briefly topped $100 a barrel for the first time since early May Friday morning, as investors grew encouraged after the Fed announced a third round of quantitative easing, or QE3, saying it would buy $40 billion of mortgage-backed bonds each month for however long it deemed necessary.
The Fed's open-ended bond purchasing program came just one week after European Central Bank president Mario Draghi said the ECB is prepared to buy euro area government bonds in the secondary market to help preserve the euro and stave off a deepening crisis in Spain and Italy.
Gold prices also rose to to a seven-month high of $1,780 an ounce before settling at $1,772.70.
While the Fed's and ECB's plans may prove to be a turning point for the global economy, there are still doubts over the substance and overall effectiveness of the newest policy measures, said Julian Jessop, chief global economist for Capital Economics.
In fact, the ECB's program fails to address the "deep-seated economic and fiscal problems facing the peripheral countries, and the region is still sliding into recession, said Jessop.
And as far as QE3 goes, each additional dose of the same medicine has a lesser effect than the last, especially after considering that borrowing costs are already at record lows and financial conditions are much healthier now than they were during the Fed's first two rounds of quantitative easing.
"Accordingly, commodity prices are likely to drop back as the focus returns to the continued deterioration in economic conditions which makes stimulus necessary in the first place," said Jessop.
Plus, even though central bank bond buying programs have clearly boosted sentiment around the globe, Jessop said it won't be long before investor attention also turns to the downside risks posed by the looming fiscal cliff in the United States.
Oil prices have also been gaining ground this week as violent Anti-American protests erupted across the Middle East and raised fears over supply disruptions. But if tensions soon subsides, the supply threat anxiety will also ease, said Mike Fitzpatrick, editor-in-chief of Kilduff Report's Energy Overview.
Though most commodity prices are likely to pull back, there is one exception: gold.
"The only clear winner is gold," said Jessop, who expects the price of gold to climb to a record $2,000 an ounce. Investors use gold as a hedge against the threat of inflation that comes with additional money printing activity from central banks. And a revival of concerns about Europe's debt crisis, and a slowdown in China and the United States will also help boost prices of the precious metal.