“…then you cannot argue anymore that the commodity prices are driven by supply and demand.”
April 23, 2012 § Leave a comment
“If you have the kind of cross-market correlations that we find over a very long period of time, and they are absolutely stable, then you cannot argue anymore that the commodity prices are driven by supply and demand. Then the supply and demand for copper or wheat drives the Standard & Poor’s 500, this is very implausible, to be mild. Just recently, we have done a study for the G20 about the macroeconomics of commodity volatility and problems that producers and consumers are facing.”
Flassbeck cited a recent study produced by two young researchers that show very strong correlation in high-frequency markets. “If you take high-frequency between shares and commodities, you find even more stable correlations on these markets.”
Flassbeck said that in some cases, speculation and financial markets dominate commodity markets. “The oil market is the best example as the most financialised market, and I find a correlation between the Brazilian Real and the Japanese Yen exchange rate and the oil price at 100% over many months. No one can say that this is the result of supply and demand, Saudi Arabia has flooded the market with oil over the last couple months. The oil stocks are absolutely full but the price went up, so this is clearly the result of financialisation.