In the long run:

In the past, the return on investment decreased-investment in basic production, distribution and storage decreased.

+

Brics countries have strong demand

||

Now, the imbalance in the real market is serious, and oil prices have dragged down the growth of the global market economy.

This is manifested in two aspects:

1. Supply shortage:

In the 1970s, the return rate of the old economy (oil, natural gas, metals and mining) was very low->; Capital entering the new economy-> insufficient investment in the old economic sectors in the 1990s-> idle capacity consumption in 2000-> rising prices-> increasing returns &; Inflation is attributed to->->; The rate of return has decreased again-> hindering investment

+

Policy allows the free flow of capital, labor and technology (government policy)->; Hinder investment growth.

| |

Even, this leads to lower efficiency and higher->, completely stopping the flow of capital->; Lead to a shortage of entities

2. Strong demand for emerging markets:

In order to maintain economic growth, the demand for commodities in emerging markets will become stronger and stronger, while the consumption of BRIC countries will only be a small part in a few decades, so this imbalance between supply and demand will intensify. Due to the decrease in investment, insufficient supply and strong demand in emerging markets, prices have been pushed to a very high level, and developed countries must also buy at a very high price. For example, oil, according to the supply and demand curve, higher oil prices will curb demand, but now the demand for oil in emerging markets is strong, making it impossible for oil prices to fall back. )

In the short term:

Insufficient supply and surge in demand affect commodity prices and fluctuations. Therefore, infrastructure affects commodity prices.

The more difficult it is to store, the greater the price fluctuation. The biggest thing is electricity, because it cannot be stored.

E7 shows that lower oil production capacity leads to higher price fluctuation.

e7

Second, the classic case of commodity prices and fluctuations: the market situation in 2008/2009

(->-deadline factor) production is limited, and the output drops->; Rising demand-> corresponding price increase-> forcing weak demand-economic slowdown &; Rising prices lead to increased investment;

(Cyclical factor) The economic crisis has reduced the oversupply-prices have fallen again.

Third, investors will also play a small role in it.

Two types of investors:

1. Speculators: hedge funds, central clearing houses and swap dealers;

It will affect the management of physical supply and promote price discovery, and investors will promote extreme price changes.

2. Index investors: pension funds, endowment funds and other real money investors.

Adopt diversified configuration, so it has little impact on the market.

Fourth, the role of other macro variables such as foreign exchange.

In recent years, the relationship between commodities and macro variables:

For oil, Granger causality is from commodity market to money market;

For agricultural products and metal markets, the causal relationship is from money market to commodity market.

The United States must import a lot of oil-the dollar flows to the world-the dollar depreciates-affecting agricultural products and metals.

Four relationships between commodities and money:

1. Does foreign exchange stimulate commodity demand? No

The depreciation of the dollar leads to an increase in speculative demand for gold, but for other commodities, the fluctuation of commodity prices is 4-5 times that of currency, and the demand elasticity is extremely small, so it is irrelevant.

2. Does foreign exchange stimulate the supply of goods? Yes for metals and agricultural products, not for energy.

Energy is a capital-intensive (capex) industry with low variable cost (opex), while metal and mining projects have high variable cost and low upfront capital requirements.

Variable costs are usually denominated in local currency, and capital expenditures are usually denominated in dollars; Therefore, the depreciation of the dollar will increase the variable cost, but it has no effect on the cost of capital expenditure.

3. Does the commodity market stimulate money demand? No

The commodity market is much smaller than the money market, and it is not as good as the influence of the upstream operation of the US dollar.

4. Does the commodity market stimulate money demand? Energy is ok, but metals and agricultural products are not, because the plates of the latter two are too small.

The oil and gas market is huge. The United States is an oil importer, and the rise in oil prices has led to the outflow of dollars from the United States. At the same time, Europe wants overall inflation rather than core inflation, and the supply of euros is reduced. Some data can prove that when the United States imports a large amount of oil, the oil price is obviously negatively correlated with the US dollar.