Balance of Probabilities Points to Metal Price Downside

The PortfolioDirect theme of metal price movements being dominated by exchange rate changes remains a key part of the cyclical assessment. Between mid-2014 and the end of 2015, the U.S. dollar exchange rate index rose by a little over 20%. Over the same period, the International Monetary Fund metal price index fell by 38%, an outcome consistent with the historical correlation. Over the period from 1973 to 2015, a rise in the exchange rate of 8% or more has been accompanied by metal price declines, as measured by the index, averaging 17%. Exchange rate declines of 5% or more have come with a metal price rise averaging 19%. The recently improved resources market tone has been exchange rate driven without any significant improvement in global growth momentum. Metal price outcomes will continue to depend heavily on central bank decision-making as monetary policies among the Chinese, Japanese, European and U.S. central banks dictate what happens to exchange rates. Allocating probabilities to the feasible scenarios suggests that conditions most conducive to higher metal prices are the least likely. For more: (VIEW LINK)