The better global manufacturing data sent base metals higher, with copper breaking a three-day losing streak to post a gain of around 1.4%. REUTERS

In the September 2011 market turmoil, commodities prices are getting hammered. Even gold, which earlier in the year seemed to decouple from everything else and rise higher and higher, has fallen.

The declines have some investors asking if the commodities rally investment thesis is still in place.

The thesis goes something like this: central banks around the world are printing money and “real assets” like commodities must therefore appreciate against them.

On Wednesday, however, the Federal Reserve proved gun shy, so much so that it earned the praise of Marc Faber, a famous disciple of the Austrian School of economics.

The Fed only rolled out Operation Twist, which lengthened the maturity of its balance sheet but did not expand it. It also gave no hint of QE3.

Investors are also dropping commodities because of recession fears. During global recessions, the demand for consumer and industrial commodities (e.g. oil and copper) falls.

The worst case for commodities, in fact, is a recessionary/stalling economy combined with no additional monetary stimulus.

Currently, there is resistance international and domestically for both the Fed and the European Central Bank (ECB) to roll out more monetary stimulus, evidence by the Fed’s modesty on Wednesday.

Francisco Blanch, head of global commodities research at Bank of America Merrill Lynch, acknowledged this situation but viewed it as a buying opportunity.

He thinks a “big policy response” will eventually come from the authorities. When that happens, commodities should do well and the bullish thesis would remain intact.

That fact that they are trading cheaply right now on fears that there will be no more monetary stimulus makes it a great buying opportunity to buy them, he said on Bloomberg TV.

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