COMMODITY SUPER-CYCLE
is a global commodity whose price is determined globally. For example, unless the entire burden of adjustment fell on the euro exchange rate, monetary loosening by the European Central Bank could influence the price of gold both in euro and in dollar terms. The same point applies to the actions of any globally-important central bank. Nor do these actions have to be confined to QE: any measures that increase liquidity (such
We therefore continue to expect gold to set new record highs of around $2,000 per ounce
as the ECB’s longer-term refinancing operations), that lower interest rate expectations (such as conditional commitments to keep rates near zero), or that raise inflation expectations (such as a higher inflation target) could be positive for the price of gold too. We therefore continue to expect gold to set new record highs (in nominal terms) of around $2,000 per ounce. Overall, recent developments have again underlined the
importance of understanding macroeconomic developments and financial factors, as well as the impact that these have on commodity markets. A detailed understanding of the supply-side is clearly helpful too. But these macro factors primarily operate
via the demand-side and have been essential to understanding the large price swings in recent years. But let’s end on a more positive
note. Our view is that a limited break- up of the eurozone should be part of the solution to Europe’s problems, rather than the disaster that many assume (or would have us believe). China’s necessary rebalancing should also lay the foundations for a much stronger global recovery too. The next year or so will be very
challenging. However, at some point soon, the prospects for commodities might be a lot brighter. •
Julian Jessop is Chief Global Economist and Head of
Commodities Research at Capital Economics, a leading independent macroeconomics consultancy.
www.capitaleconomics.com
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