BRIAN KANTOR: No such thing as a cycle, only windfalls or their opposite — whiplash

The markets for industrial and precious metals are demonstrating some important truths. The price of iron ore, about $92 a tonne this week, was more than twice as high ($200 a tonne) in early July. Its price is as hard to predict today as it was a year ago, when it sold for a mere $85 a tonne.

The pace of the recovery of the global economy after the lockdowns was unpredictable, and proved surprisingly strong in increasing the demand for steel and iron ore and other industrial metals. It is an expected slowdown in global growth rates, and so in the demand for steel and other industrial metals in the months to come, that has caused prices to fall back as surprisingly.

It should be recognised that there is no predictable cycle of the price of any well-traded metal, currency, share or bond to assist timing an entry to or exit from the market. Were there any regular cycle of prices, or indeed of economic activity, that is a predictable trend towards peak growth rates followed by slower growth then a recovery from the trough, it would greatly help traders, producers or consumers sell at the top and buy at the bottom.

However, such cycles are only revealed well after the events. They are the result of smoothing the data, comparing the outcomes to what occurred a year before, when almost all of the numbers overlap. Day to day, the data looks very different and the future of prices will not be at all obvious. They unfold as a random walk, with most prices having an almost 50% chance of rising or falling on any one day.

Whether these random moves are drifting higher or lower to establish some persistent trend will only be discovered well after the event — perhaps only a year later. All we can attempt — and there is no lack of such attempts — is to model the forces of supply and demand that will determine prices or quantities in future as rationally as possible. And perhaps be bold enough to believe that your model will prove more accurate than the opinions revealed by current prices, which we know will vary with the news.