Jonathan Yates: Suspicions that the Federal Reserve will eventually launch into a third round of quantitative easing has led some traders to bet on a weaker dollar and higher prices for oil (NYSE:USO), gold (NYSE:GLD) and copper (NYSE:JJC).

In a recent article in the Financial Times by Robin Harding and Shannon Bond, “Guessing game over Fed split,” it was detailed how “future policy easing could be on its way.”

Apparently, opposition within the Fed to Bernanke’s policy of expanding the balance sheet is eroding, according to Harding’s and Shannon’s excellent piece in the Financial Times.

Hello, quantitative easing III, and enter stage left, higher commodity prices for oil, gold, copper and other commodities quoted around the world in dollar terms.

The story is a tale of basic supply and demand — for dollars.  QE II had the Federal Reserve underwriting the US federal budget deficit by about $70 billion monthly through an accounting mechanism, debiting the Fed’s account at the regional banks. There were no funds appropriated by Congress to finance the purchase of these bonds so those dollars were effectively created out of thin air

The US federal budget deficit this year will be about $1.2 trillion, representing 42% of Washington’s spending.

As more dollars are created, the value of each dollar will naturally fall — a matter of basic supply and demand.

Investors will shun the dollar — a “soft” asset — for “hard” assets such as oil, gold and copper.

Written By Jonathan Yates From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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