« As the Fed embarks on a third round of quantitative easing, risky assets are rallying hard. Commodities were amongst the biggest gainers of any asset class following the announcement of QE2, with the DJUBS index gaining 12% in three months. Are commodities poised for similar gains this time round? We doubt it. Conditions in the macro economy are much less supportive, commodity prices are higher and the impact of successive waves of QE is having less impact each time. When QE2 was announced in November 2010 the global economy was halfway through a quarter where GDP averaged 4%. Crucially for commodities, China was expanding at an annualised rate of 9.5%. Even if QE3 proves successful, growth over the remainder of this year will be much lower and without fundamental support liquidity driven rallies are likely to fade fast for most commodities. The one exception to this could be precious metals, where physical market balances are less influential. With the dollar weakening and the debate over fiat currency debasement now likely to move back centre stage, QE3 is likely to unleash enough physical and futures market buying to bring to an end gold’s position as one of the weakest commodity markets in 2012 so far. »