Dynamic relationship between precious metals

We use a relatively new approach to endogenously detect the volatility shifts in the returns of four major precious metals (gold, silver, platinum and palladium) from 1999 to 2013. We reveal that the turbulent year of 2008 has no significant effect on volatility levels of gold and silver however causes an upward shift in the volatility levels of palladium and platinum. Using the consistent dynamic conditional correlations, we show that precious metals get strongly correlated with each other in the last decade which reduces the diversification benefits across them and indicates a convergence to a single asset class. We endogenously detect the shifts in these dynamic correlation levels and reveal uni-directional volatility shift contagions among precious metals. The results show that gold has a uni-directional volatility shift contagion effect on all other precious metals and silver has a similar effect on platinum and palladium. However, the latter two do not matter in terms of volatility shift contagion. Thus, investors that hedge with precious metals should, in particular, monitor the volatility levels of gold and silver.     

Impact of crude oil price volatility on economic activities: An empirical investigation in the Thai economy

This paper empirically examines the impact of oil price volatility on key macroeconomic indicators of Thailand. Following Andersen et al. [2004. Analytical evaluation of volatility forecasts. International Economic Review 45(4), 1079–1110], quarterly oil price volatility is measured by using the realized volatility (RV). The impact of the oil price volatility is investigated using the vector auto-regression (VAR) system. The Granger causality test, impulse response functions, and variance decomposition show that oil price volatility has significant impact on macroeconomic indicators, such as unemployment and investment, over the period from 1993Q1 to 2006Q4. Perron's [1997. Further evidence on breaking trend functions in macroeconomic variables. Journal of Econometrics 80(2), 355–385] test identifies structural breaks in all the concerned variables during the time of the Asian Financial Crisis (1997–1998). A VAR for the post-crisis period shows that the impact of oil price volatility is transmitted to budget deficit. The floating exchange rate regime introduced after the crisis may be the key contributor to this new channel of impact.     

Forecasting precious metal price movements using trader positions

In the early 2000s, the precious metal markets entered into a new phase where a steady rise of prices had been observed until the October 2008 crash. Given the size and importance of precious metal market, as well as the hedging capacity of precious metals due to their low correlation with equity markets (Draper et al., 2006), the question we want to arise is whether trader positions predict the direction of gold, platinum, and silver spot price movements. The forecasting content of the Commodity Futures Trading Commission’s Commitment of Traders report for platinum, silver and gold prices using trader positions is investigated in a VAR framework. Granger causality tests are conducted to determine whether a relation between trader positions and market prices exists. An examination of the extreme trader positions on price movements is also conducted. The results indicate that market return is a significant parameter in explaining trader’s positions for all trader types in each of the precious metal markets under consideration after the beginning of 2000s where we detect a structural break for each of the market under study. Commercial traders are found to be negative feedback traders, that is, they sell when the prices increase in the market. On the other hand, in line with the previous literature, a positive correlation between returns and positions held by non-commercial and non-reporting traders is found. However, trader’s net positions do not lead market returns in general. There is some evidence on the forecasting ability of extreme trader positions on market returns.     

Is there a common metals demand curve?

Previous studies have identified a single, stable and strong correlation between the price of metals and their consumption, such that low priced metals are always used in large amounts and visa versa. Some have interpreted this as evidence that metals share a common demand curve so that a single price elasticity of demand exists. This paper reviews and tests this hypothesis against a number of other possible explanations, including the idea that the relationship is an empirical curiosity. Modifications to the demand curve were tested by allowing metals to have different intercepts and price elasticities. The results from this analysis suggest that metals do not share a common demand curve and that the correlation identified between the price of metals and their level of consumption is an empirical curiosity. As such, the singular price elasticities published in past papers should not be used for assessing future rates of metals substitution.     

Oil spills on other commodities

This paper examines the effect of crude oil prices on the prices of 35 internationally traded primary commodities for the 1960–2005 period. It finds that the pass-through of crude oil price changes to the overall non-energy commodity index is 0.16. At a more disaggregated level, the fertilizer index had the highest pass-through (0.33), followed by agriculture (0.17), and metals (0.11). The prices of precious metals also exhibited a strong response to crude oil price. In terms of individual commodities, the estimates of the food group exhibited remarkable similarity while those of raw materials and metals gave a mixed picture. The implication is that if crude oil prices remain high for some time, as most analysts expect, then the recent commodity price boom is likely to last much longer than earlier booms, at least for food commodities. The other commodities, however, are likely to follow diverging paths. On the methodological side, the results show that price indices, while providing useful summary statistics, they need to be supplemented by individual commodity analysis.     

Market imperfections in recycling markets: conceptual issues and empirical study of price volatility in plastics

The effectiveness of recycling depends upon efficient functioning of secondary material markets. This paper focus on the role that price volatility can play in slowing investment and market development. However, a statistical analysis of the relative volatility of secondary and primary material prices does not confirm the widely-held belief that relative price volatility is higher in secondary than in primary materials, at least at national levels.An econometric estimation of the determinants of plastic recovery volumes in Seattle contributes to the literature in four ways: the use of monthly (as opposed to annual) data; the use of local (as opposed to national) data; the use of an explanatory variable to reflect price volatility; and, the focus on plastics, which have not been examined previously. Some tentative conclusions can be made: the results generally support the principal hypothesis that price volatility has a negative effect on recovery of secondary materials; in addition, and consistent with previous studies, price elasticities are low and insignificant; and finally, policy factors are clearly important. The concluding section treats the economic and policy implications of market inefficiency in secondary material markets.     

Long memory in energy futures markets: Further evidence

This paper investigates long memory (or long-range dependence) in price returns and volatilities of energy futures contracts with different maturities. Based on a modified rescaled range analysis and three local Whittle methods, the results from rolling sample test suggest that the returns showed little or no long-range dependence over time but the volatilities displayed significant time-varying long-range dependence. Our evidence shows that some extreme events could cause long memory in returns and volatilities, leading to market inefficiency. Employing multiscale analysis, we find that the returns displayed no long-range dependence for any of the chosen time scales. Significant long-range dependence only existed in volatilities for daily time scales but not for monthly or yearly time scales.     

Theory of storage,inventory and volatility in the LME base metals

The theory of storage, as related to commodities, makes two predictions involving the quantity of the commodity held in inventory. When inventory is low (i.e. a situation of scarcity), spot prices will exceed futures prices, and spot price volatility will exceed futures price volatility. Conversely, during periods of no scarcity, both spot prices and spot price volatility will remain relatively subdued. We test these predictions for the six base metals traded on the London Metal Exchange (aluminium, copper, lead, nickel, tin and zinc), and find strong validation for the theory. Including Chinese inventories reported by the Shanghai Futures Exchange strengthens the relationship further. We also introduce the concepts of excess volatility, inventory-implied spot price and inventory-implied spot volatility and illustrate some applications.     

Metal prices and the business cycle

Metal price fluctuations have recently been of interest not only because of their cyclical volatility but also of their interaction with business cycles. A related issue is whether metal prices move together sufficiently to collectively reflect macroeconomic influences. Correlation or the tendency for prices to move together has been termed “comovement”, where the commonality in prices reflects the tendency of commodity markets to respond to common business cycle and trend factors. Metal prices are known to respond to macroeconomic influences and the latter might well explain the common factor which causes them to move together. Our goal is to provide an estimate of the common factor in metal prices and to relate this factor to important macroeconomic influences. The prices we study are for aluminum, copper, tin, lead and zinc; the macroeconomic variables include industrial production, consumer prices, interest rates, stock prices, and exchange rates. Our results confirm that the common factor in metal prices can be related to such macroeconomic influences.     

Jumps in Euribor and the effect of ECB monetary policy announcements

The main tool that the ECB uses to influence monetary policy is through the short-term refinancing rate, a change in the short-term interest rate can in turn cause the whole yield curve to shift. In addition to central bank announcements, interbank rates such as Euribor are also influenced by, forward guidance from the ECB, various macroeconomic events, liquidity in the money markets and the perceived credit worthiness of financial institutions. Forward rates are usually used by policy makers and market practitioners to examine expectations, but options provide additional information about the uncertainty of these expectations, particularly future jump expectations. This research examines the jump characteristics of the 3-month Euribor futures contract and its corresponding futures option contracts using both a jump diffusion model with a Bernoulli jump distribution and option-implied parameters using a jump diffusion process with Poisson distribute. We find that both the Bernoulli jump analysis of historical data and implied jump diffusion model succinctly capture diffusion volatility, jumps and jump size. Using a regression analysis to examine the effect of ECB refinancing rate monetary policy announcements on the 3-month Euribor and the associated jump parameters, we find a significant relationship between ECB announcements and the probability of a jump in Euribor. Regression coefficients on the implied jump amplitude parameters suggest that the market correctly anticipates the direction of the rate announcement suggesting option-implied jump parameters can predict, to some extent, ECB announcements. However, our results also show that there is significant uncertainty before the announcements, and this implies that monetary policy communication is not having the full desired effect.     

Electronic waste recycling: A review of U.S. infrastructure and technology options

The useful life of consumer electronic devices is relatively short, and decreasing as a result of rapid changes in equipment features and capabilities. This creates a large waste stream of obsolete electronic equipment, electronic waste (e-waste).Even though there are conventional disposal methods for e-waste, these methods have disadvantages from both the economic and environmental viewpoints. As a result, new e-waste management options need to be considered, for example, recycling. But electronic recycling has a short history, so there is not yet a solid infrastructure in place.In this paper, the first half describes trends in the amount of e-waste, existing recycling programs, and collection methods. The second half describes various methods available to recover materials from e-waste. In particular, various recycling technologies for the glass, plastics, and metals found in e-waste are discussed. For glass, glass-to-glass recycling and glass-to-lead recycling technologies are presented. For plastics, chemical (feedstock) recycling, mechanical recycling, and thermal recycling methods are analyzed. Recovery processes for copper, lead, and precious metals such as silver, gold, platinum, and palladium are reviewed. These processes are described and compared on the basis of available technologies, resources, and material input–output systems.     

Understanding world metals prices—Returns,volatility and diversification

In recent times, the prices of internationally traded metals have reached record highs and there is considerable uncertainty regarding their future. This phenomenon is partially driven by strong demand from a small number of emerging economies, such as China and India. This paper uses a long time-series (1900–2007) on 21 metals prices to investigate their properties, and presents unique features of their volatility, including a decomposition into within- and between-group components. If most volatility is commodity-specific rather than “global”, then metals-exporting dependent economies can smooth income via diversification.     

Limitations of applying life cycle assessment to complex co-product systems: The case of an integrated precious metals smelter-refinery

Integrated smelter-refineries play an important role in the recovery of multiple metals from complex primary and secondary materials, and hence in closing metals cycles. Processes in these facilities are strongly interconnected, dynamic, and multifunctional, which challenges a typical representation in life cycle assessment (LCA). This is especially true when LCA is applied to calculate the environmental profile of single metals products.This study examines methodological requirements for assessing complex co-product systems using attributional LCA through a static, gate-to-gate inventory model that quantifies the environmental impacts of each of the metal products of an integrated precious metals smelter-refinery. The model is based on a large number of subprocesses and is formulated using detailed industry data, which allows quantification of the sensitivity of the results with respect to allocation rationales and the data collection period.The results within one impact category vary strongly among metals (up to four orders of magnitude for copper compared to rhodium). Moving from mass- to value-based allocation changes the result for a given metal by up to two orders of magnitude. If value-based allocation is used, the selected reference year for metals prices influences the results by up to a factor of two.Allocation rationales are critically analyzed, and it is shown that none reflect the business model or other system drivers. While the model is focused on quantifying environmental impacts of metal outputs, the actual process is economically driven to efficiently treat a continuously changing feed mix. The complexity of a smelter-refinery cannot be captured by static, attributional inventory models, which is why the choice of allocation rationale remains arbitrary. Instead, marginal, parameterized models are needed; however, such models are substantially more time and data intensive and require disclosure of more detailed, process specific data.     

Duration and characteristics of metal price cycles

This paper addresses the fluctuations in real metal prices: are they simply random variations or do they display some degree of cyclicality? This study identifies peaks and troughs in the inflation adjusted prices for 14 metals, using monthly average data from January 1947 through December 2007. Duration dependence testing, which is performed on the expansions, contractions, and full cycles, finds many cases in which the duration of these phases are not purely random and have some degree of cyclicality. Additional characterization show that contractions generally persist longer than expansions (in contrast to macroeconomic cycles) that long-term real prices have been trendless, and that the amplitude of price changes over the phases has little regularity. For those performing this type of analysis, the appendices explain the procedures for dating turning points and assessing duration dependence.     

Estimating the volatility of mining projects considering price and operating cost uncertainties

In the real option pricing model of valuation and decision making, the estimation of future volatility is a key input parameter. For traded commodities or financial assets, past volatility is used as a proxy for predictions. But, for projects, this approach is not feasible because, in most cases, historical data of traded projects are not available. As an alternate solution, it is usually assumed that project volatility is equal to that of commodity price. In order to investigate this assumption, we estimate the project volatility considering that both commodity price and operating cost evolve as a geometric Brownian motion (GBM). Results of a hypothetical gold mining project indicate that project volatility is higher than that of commodity price and it only drops to price volatility under very unrealistic industry conditions, such as very high prices or very low production costs. In addition, we find that project volatility is independent of production capacity and taxation, but depends on increments in price and cost, as well as strongly on their degree of correlation.     

Assigning money amounts to represent intrinsic value of precious eco-systems in developing countries

Conclusion  The need is urgent, if the ongoing rapid degradation of the remaining precious eco-systems of the developing countries are to be put under control while there is still time, for developing a procedure by which the real world intrinsic meaningfulness to people of precious eco-systems is recognized by assigning them monetary values to be considered in benefit/cost analyses. The procedures recommended by the U.S. Corps of Engineers and Resources of the Future for use in the USA seem to be much too complex for application in developing countries in the foreseeable future. Rather a very pragmatic approach is recommended based on actual experience in money outlays for such protection in USA projects, with the amounts modified to suit developing country conditions. Hopefully the IAAs (Multilateral Development Banks, Bilaterials, U.N. Agencies) will carry out the recommended R&D studies to produce a prescribed methodology recognized by economic, environmental, and political decision makers of both the IAAs and the DCs to be appropriate for use in planning and evaluating DC projects.     

Dynamic metals demand model

Studies by Nutting, Jacobson and Evans and Georgentalis et al. have all concluded, using panel data sets, that a number of metals appear to share a common demand curve that is stable over time. However, these studies have a number of theoretical and econometric limitations. This paper addresses these concerns and reassesses the hypothesis that some metals share such a common demand curve with the same price elasticity of demand. This is achieved within the framework of a random coefficients model. This model was applied to a dynamic metals demand function (DLR) and various estimation techniques were used including OLS, IV, Empirical Bayes (EB) and Instrumental Variables Empirical Bayes (IV-EB). It was found that each metal had its own individual short run demand function with statistically different own price and industrial activity elasticities of demand. In the long run, each metal appeared to be equally unresponsive to price changes, but had different industrial activity elasticities. The speeds of price adjustment to periods of market disequilibrium differed substantially between metals.     

Metalliferous sediments in the Atlantis II Deep—Assessing the geological and economic resource potential and legal constraints

Projected increases in demand and thus increasing metal prices have brought the exploration and exploitation of marine mineral resources back into focus. The Atlantis II Deep, located in the central Red Sea between Saudi Arabia and Sudan, is one of the largest marine sulfide deposits known, with high concentrations of metals such as zinc, copper, silver and gold. However, little is known about the economic potential of marine minerals as well as the legal constraints. Our geological assessment shows that the deep is similar in grades and scale to large land-based deposits. Its economic potential is far from negligible. The total present value of possible gross revenues for the four metals zinc, copper, silver and gold ranges from 3.03 to 5.29 billion US$, depending on the assumptions made concerning future price development, mass calculation and discount rate. From a legal perspective, a general duty to cooperate in the exploration and exploitation of non-living resources located in disputed maritime areas is identified in both customary international law and in UNCLOS. It is submitted that a joint development agreement is one means of ensuring compliance with this duty in general and in the case of the Atlantis II Deep in particular.     

The Austrian silver cycle: A material flow analysis

Silver (Ag) is a precious metal of increasing importance. Besides its classical use as a valuable, it is applied in an increasing number of industrial products due to its advantageous chemical properties. As silver is considered a non-renewable resource, it is becoming more and more relevant for individual countries to gain a better understanding of their domestic silver material flows. In our study, a material flow analysis (MFA) of silver in Austria for the period 2012 was carried out, the results of which reveal the major silver flows in the country as well as the imports and exports outside the country. As there is no extraction of silver ore in Austria, the country is depending on silver imports and recycling. Furthermore, the role of the silver coin production that is of considerable importance in Austria is highlighted. The results may help, on a policy level, to determine silver use indicators and support the development of strategies for resource, waste and environmental management of silver. On a modeling level, the results may function as an example for future silver MFA studies in different countries.     

Quantifying the impacts of primary metal resource use in life cycle assessment based on recent mining data

The quantification of impacts in the abiotic resource category in life cycle assessment is still controversial. However, this is a pertinent issue because of the growing dependence of our industrial society on these resources, particularly on metal resources. One of the important shortcomings of the existing assessment methods used today is that characterization factors are not based on actual mining practice data. In this paper, a new characterization factor derived from recent (1998–2010) and representative (more than 50% coverage of global primary metal production) mining data was established for nine metals: copper, zinc, lead, nickel, molybdenum, gold, silver, platinum and palladium. The quantification of this new characterization factor is based on the annual increase in mass of ore required per unit mass of metal in the ore. This quantification relies on the concept that the mining of resources is threatened not by lack of ores but by changing ore characteristics, e.g., the percentage of metal in the ore, mineral type and location. The characterization factors determined in this study ranged from below 0.1 kg ore kg⁻¹ y⁻¹ for zinc to more than 15,000 kg ore kg⁻¹ y⁻¹ for gold. These results indicate that in 1999, 370,000 kg of ore was required per kg of gold in the ore, whereas in 2008, 530,000 kg of ore was required per kg of gold in the ore (an increase of approximately 4% per annum). When comparing these results with traditional life cycle impact assessment methods, it was found that in all but one method gold, palladium and platinum have the highest characterization factors among the nine metals. In all methods based on ore grade changes lead and zinc are the metals with the lowest characterization factors. However, an important difference in the proposed method is that it assigns higher relative values to precious metals. This suggests that the supply of precious metals may be under more pressure than indicated by other methods, which in the framework of the proposed method implies greater efforts in mining and mineral processing. There is still scope for improvement of the proposed method if more data become readily available.