The macroeconomic determinants of volatility in precious metals markets

This paper models the monthly price volatilities of four precious metals (gold, silver, platinum and palladium prices) and investigates the macroeconomic determinants (business cycle, monetary environment and financial market sentiment) of these volatilities. Gold volatility is shown to be explained by monetary variables, but this is not true for silver. Overall, there is limited evidence that the same macroeconomic factors jointly influence the volatility processes of the four precious metal price series, although there is evidence of volatility feedback between the precious metals. These results are consistent with the view that precious metals are too distinct to be considered a single asset class, or represented by a single index. This finding is of importance for portfolio managers and investors.     

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.     

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.     

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.     

Is gold a hedge or safe haven against oil price movements?

This paper assesses the role of gold as a hedge or safe haven against oil price movements. We use an approach based on copulas to analyse the dependence structure between these two markets. Empirical evidence for weekly data from January 2000 to September 2011 revealed the following: (a) there is positive and significant average dependence between gold and oil, which would indicate that gold cannot hedge against oil price movements; and (b) there is tail independence between the two markets, indicating that gold can act as an effective safe haven against extreme oil price movements. These results are useful for both portfolio risk managers and designers of policies aimed at using gold to preserve or stabilise oil exporter purchasing power.     

Testing the international linkage in the platinum-group metal futures markets

This study tests whether an international market exists in the platinum-group metal (PGM) futures markets. For this purpose, we tested the law of one price (LOP) and the causality between the U.S. and Japanese platinum and palladium futures markets. We also performed the test when structural breaks are considered. Long-run price relationships were found in both platinum and palladium markets but the LOP only sustained in the palladium market. The causality test revealed that it is the U.S. market that leads the price to transmit information between the U.S. and Japanese markets. Structural breaks had large impacts on the test results, suggesting that incorporating breaks is important when investigating the international price linkage in the PGM futures markets.     

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.     

The crude oil market and the gold market: Evidence for cointegration,causality and price discovery

Given that the gold market and the crude oil market are the main representatives of the large commodity markets, it is of crucial practical significance to analyze their cointegration relationship and causality, and investigate their respective contribution, from the perspective of price discovery, to the common price trend so as to interpret the dynamics of the whole large commodity market and forecast the fluctuation of crude oil and gold prices.     

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.     

Metals recycling in the United States

Twenty-two metals for which secondary recovery is important, in terms of quantity and/or value, were compared and ranked for rate and efficiency of recycling, and availability of recycled metal. In general, their recycling rates trended upward over the period 1970–1993. Iron, aluminum, copper, gold, platinum, and lead accounted for most of the value of all secondary metal produced, while iron and steel dominated in terms of quantity produced and exported. The factors most influential on recycling rates are profitability, public support, organization of infrastructure, sortability, legislative support, and scrap purity. The share of supply accounted for by secondary metals is expected to surpass that of primary metals sometime in the next decade.     

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.     

An analysis of future platinum resources,emissions and waste streams using a system dynamic model of its intentional and non-intentional flows and stocks

Platinum is increasingly used intentionally and non-intentionally in several applications. This has raised the concern about its future resources, emissions and losses during its life cycle. On the one hand, increasing platinum emissions might affect human health. On the other hand, the accumulated platinum in mineral waste, soil, landfill sites and construction materials as a result of the emissions, losses and the utilization of secondary materials can be seen as potential resources for platinum. This paper is aimed at (1) analyzing the long term impacts of the use of platinum intentionally and non-intentionally on its future demand and supply, release to the environment and accumulation in mineral waste, soil, landfill sites and construction materials and (2) quantifying the amount of platinum in secondary materials that would be available for platinum future supply. The analysis is carried out on a global level using a system dynamic model of platinum intentional and non-intentional flows and stocks. The analysis is based on four scenarios for the introduction of fuel cell vehicles (FCVs). The results show that platinum demand is increasing overtime in all scenarios at different rates and its identified resources are expected to deplete before the end of the century with or without the introduction of FCVs. The release of platinum to the environment and the accumulation in soil are expected to decrease when conventional ICE vehicles is replaced by FCVs. The amount of platinum accumulated in mineral waste, soil, landfill sites and construction materials by the time platinum is depleted are more than double its identified resources and would be potential resources for platinum that are available in different parts of the world. The methodology presented in this paper can be used in the assessment of other technologies and other metals.     

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.     

Iron ore spot price volatility and change in forward pricing mechanism

To examine the impact of the change in forward pricing mechanism on the volatility of iron ore spot prices, we model the iron ore daily price of Platts IODEX from October 7, 2008 to September 21, 2012. The identified iron ore spot price tends to be less volatile after the introduction of quarterly pricing mechanism. Our main approaches are as follows: (i) to decompose the spot price of Platts IODEX into two subsamples and relate the result of the structural break to the date of the switch in the iron ore forward pricing mechanism; (ii) to apply the EGARCH (1, 1) model to simultaneously capture the long memory and the asymmetric effect on the volatility of the iron ore spot price; and (iii) to delineate the news impact curve to further interpret the asymmetric effect.     

Metal scarcity and sustainability,analyzing the necessity to reduce the extraction of scarce metals

There is debate whether or not further growth of metal extraction from the earth's crust will be sustainable in connection with geologic scarcity. Will future generations possibly face a depletion of specific metals? We study whether, for which metals and to what extent the extraction rate would need to be reduced in order to be sustainable. To do so, we propose an operational definition for the sustainable extraction rate of metals. We have divided 42 metals in 4 groups according to their geologic scarcity. Applying the proposed sustainability definition to the 17 scarcest metals, shows that for almost all considered metals the global consumption of primary resources needs to be reduced to stay within sustainable limits as defined in our analysis. The 8 geologically scarcest metals are antimony, bismuth, boron, copper, gold, molybdenum, rhenium and zinc.     

Effects of smelter sulfur dioxide emissions: a spatiotemporal perspective using carbon isotopes in tree rings

We wanted to test the hypothesis that forest exposure to phytotoxic gases indirectly affects their carbon uptake. We estimated that the reduction of photosynthesis may have reached 20 to 30% at a site located 9 km (test site) from the Horne copper smelter in Rouyn-Noranda, which is a point source of SO2. Twenty-one spruce trees older than 100 yr were selected from seven sites at various distances from the smelter to evaluate conditions prior to and during the periods of smelter operation. The carbon isotope results obtained from spruce tree rings at our test site reveal an unprecedented and abrupt shift of +4/1000 after the onset of smelter operations. This large and permanent shift exceeds natural variations in regional pre-smelter series or in the series at a remote control site. All trees up to 116 km downwind from the smelter show delta13C positive shifts following the onset of operations. There is also a clear inverse relationship between the amplitude of the first-order trends and distance from the smelter. Those delta13C trends indicate that trees exposed to high levels of SO2 decrease their level of CO2 uptake through activation of stomatal closure. This is strongly supported by the significant departure of the Rouyn-Noranda trends from those measured for trees from non-industrialized areas of the Northern Hemisphere, or calculated using global atmospheric conditions. Considering the large number of SO2 point sources in North America, our results imply that CO2 uptake by the boreal forest in the vicinity of these sources may be lower than previously thought.     

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.     

Effects of Metal Mining and Milling on Boundary Waters of Yellowstone National Park, USA

/ Aquatic resources in Soda Butte Creek within Yellowstone National Park, USA, continue to be threatened by heavy metals from historical mining and milling activities that occurred upstream of the park's boundary. This includes the residue of gold, silver, and copper ore mining and processing in the early 1900s near Cooke City, Montana, just downstream of the creek's headwaters. Toxicity tests, using surrogate test species, and analyses of metals in water, sediments, and macroinvertebrate tissue were conducted from 1993 to 1995. Chronic toxicity to test species was greater in the spring than the fall and metal concentrations were elevated in the spring with copper exceeding water quality criteria in 1995. Tests with amphipods using pore water and whole sediment from the creek and copper concentrations in the tissue of macroinvertebrates and fish also suggest that copper is the metal of concern in the watershed. In order to understand current conditions in Soda Butte Creek, heavy metals, especially copper, must be considered important factors in the aquatic and riparian ecosystems within and along the creek extending into Yellowstone National Park.KEY WORDS: Mining; Metals; Toxicity; Biomonitoring; Copper; Yellowstone National Park     

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.     

An uncertainty based multi-criteria ranking system for open pit mining cut-off grade strategy selection

Cut-off grade strategy (COGS) is a concept that directly influences the financial, technical, economical, and environmental issues in relation to the exploitation of a mineral resource. Despite the simple definition of cut-off grade, the COGS problem is one of the complex and complicated problems in the mine planning process. From the optimization point of view, the COGS with an objective of maximizing the present value of future cash flows is a non-linear and a non-convex problem that even in its deterministic form can be solved using approximate optimization methods. This optimization problem will also be more complex and complicated under uncertainty conditions. This paper proposes an uncertainty based multi-criteria ranking system to investigate the problem of COGS selection considering metal price and geological uncertainties. The proposed system aims at selection of the best COGS among technically feasible alternative COGSs under uncertainty circumstances. Our developed system is based on integrating metal price and geological uncertainties as well as operating flexibility to close the mine early. We incorporate this operating flexibility into the proposed system using a Monte Carlo based real options (RO) valuation model. For this purpose, in addition to the expected value, other risk criteria are considered to rank the alternatives. These risk criteria include abilities of strategies in producing extra profits, minimizing losses, and achieving the predefined goals of the production. In this study, the technically possible COGSs are generated using the Lane comprehensive algorithm. To demonstrate the effectiveness of the proposed system, we utilize data of an Iranian gold mine. Results show that the proposed system outperforms conventional methods in the sense that it shows significantly lower average mis-ranking than the other methods and also selects a strategy with a higher value. The sensitivity analysis of the proposed system relative to the gold price shows that the system is highly dependent on the parameters of the stochastic process used to model the evolution of the metal price. Therefore, special consideration should be given in estimating stochastic process parameters.