Dynamics Behind Cycles and Co-movements in Metal Prices: An Empirical Study Using Band-Pass Filters

Abstract

After living one of the most intense metal price cycles, several ongoing macroeconomic phenomena with the potential of structurally redefining the long-run supply and demand for metals, and raising divergency regarding where the metal prices are trending, it is suitable to evaluate the dynamics in the metal prices, especially focus on the long cyclical components. This article studies in detail the cyclical components of the real prices of base metals, iron ore, and gold, applying band-pass filters and a novel decomposition over time series with length as far as 1800. The main findings are: (1) the long cyclical components in real prices are highly correlated among them and with the proposed long economic cycles, (2) short and medium cyclical components are more relevant in explaining the price deviations from their trend, but the long cyclical component is not negligible, (3) co-movement in base metals is strong for all the cyclical components, but decreasing as cyclical frequency increases, and (4) prices are either sideways or upward-trending depending on the assumptions for correction of the US Consumer Price Index, which suggests that the supply side of these industries, in the best case, only offset the cost increases by depletion.