The markets for industrial and precious metals are demonstrating some important truths. The price of iron ore, about $92 a tonne this week, was more than twice as high in early July. Its price is as hard to predict today as it was a year ago, when it sold for a mere $85 a tonne.
It should be recognised that there is no predictable cycle of the price of any well-traded metal, currency, share or bond to assist timing an entry to or exit from the market. Were there any regular cycle of prices, or indeed of economic activity, that is a predictable trend towards peak growth rates followed by slower growth then a recovery from the trough, it would greatly help traders, producers or consumers sell at the top and buy at the bottom.
Whether these random moves are drifting higher or lower to establish some persistent trend will only be discovered well after the event — perhaps only a year later. All we can attempt — and there is no lack of such attempts — is to model the forces of supply and demand that will determine prices or quantities in future as rationally as possible.
The GDP in current prices has risen almost as high as long-term interest rates to help reduce the debt-to-GDP ratios. Yet long-term interest rates remain at high levels, and are still particularly high relative to short rates, implying a doubling of short-term interest rates in three years. This would be bad news for the economy. It is difficult to make sense of this view of SA interest rates and monetary policy.
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