The markets of metals: determinants, predictors, and interrelations
- Metals, the markets they are traded at, and in particular metal prices are of great importance to the global economy. On the one hand, many developing countries, where metals are usually mined, are heavily dependent on revenues from commodity exports. On the other hand, industrialized countries consume these metals on a large scale and hence fear the inflationary pressure caused by rising commodity prices. While metals areoften considered a unified group or asset class, they are in fact very heterogeneous, bothin terms of usage within different industries and the characteristics of their markets. Theobjective of this thesis is therefore to provide an in-depth analysis of metal markets, theirdeterminants, predictors, and interrelations.
Metal prices are believed to be primarily demand-driven, while this demand is again drivenby numerous microeconomic, macroeconomic, and financial market conditions. Monetarypolicy of central banks in general, and the policy of the Federal Reserve inMetals, the markets they are traded at, and in particular metal prices are of great importance to the global economy. On the one hand, many developing countries, where metals are usually mined, are heavily dependent on revenues from commodity exports. On the other hand, industrialized countries consume these metals on a large scale and hence fear the inflationary pressure caused by rising commodity prices. While metals areoften considered a unified group or asset class, they are in fact very heterogeneous, bothin terms of usage within different industries and the characteristics of their markets. Theobjective of this thesis is therefore to provide an in-depth analysis of metal markets, theirdeterminants, predictors, and interrelations.
Metal prices are believed to be primarily demand-driven, while this demand is again drivenby numerous microeconomic, macroeconomic, and financial market conditions. Monetarypolicy of central banks in general, and the policy of the Federal Reserve in particular,affects several of these demand channels and is therefore considered to have a significantimpact on commodities in general and metals in particular.
In the first part of this thesis, we investigate whether and 6ahow the impact of monetarypolicy on metal prices has changed, as a result of the implementation of unconventionalpolicy actions. While we observe the policy channel, as well as the direction of relationhave shifted, the policies’ impact on metals remains valid over time.
In the second part of this thesis, we analyze the forecastability, as well as the metal-specificprice predictors and determinants of three precious, six industrial, as well as fifteen minormetals. We find strong predictability for the minor metals, as well as changes in theprice predictors and determinants over time, where we additionally observe effects of thefinancialization of commodity markets.
Given the similar price determinants of the industrial metals in this empirical analysis,as well as their theoretical relationship via the co-production, co-consumption, as well asthe co-trading on exchanges, we proceed to model the industrial metal markets jointly inthe third part of this thesis. We therefore connect multiple metal markets via a globalvector autoregression and reveal numerous linkages within and across the individual metalmarkets, especially between prices.
Overall, this thesis reveals the individuality of each metal market, their increasing connection with financial markets and the global economy, as well as their interrelations.…
