Abstract
To establish stock-versus-flow orientations of a commodity, the mediating role of inventories in price formation is considered. This framework is tested by examining responses of COMEX gold, silver, and copper to macroeconomic news releases. Standard responsiveness-tests, which ignore the role of inventories, show gold and silver (our ex-ante stock-oriented commodities), exhibiting weak stock-orientation, while copper exhibits a flow-orientation. However, when the role of inventories is considered, the stock-orientation of gold and silver becomes readily apparent. Additionally, copper exhibits sporadic stock-orientation. Our findings which demonstrate the importance of recognizing these distinctions also have useful implications for market regulation.
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