Investec put forward a general thesis earlier in the week that the strength in mining and commodities during 2016 has been more due various government policy initiatives than to any significant market-driven demand.
Witness, the argument goes, the Chinese stance on coal. Supplies are deliberately curtailed for safety and pollution-related reasons, and the coal price duly doubles in a matter of months, from less than US$100 a tonne for met coal to more than US$200.
Or nickel, which has bounced off multi-year lows and risen 40% to US$4.72 per pound as the Philippine government has ordered mine closures for environmental reasons.
Or gold, which has proved highly sensitive to the Fed’s machinations on interest rates, at least within a given range, and which also bounced as a result of Brexit - although whether this last can be counted as government policy per se is open to question.
Thus, any fund managers working their economic models on the basis of market-driven supply and demand were wrong-footed in January and has subsequently had to scramble for position. This playing of catch up by institutions underweight a booming sector only served to exacerbate the effect of the run on equities.
To some extent it’s still going on.
It’s an interesting game to play. Gold trades in a range on interest rate speculation and could well drop back to below US$1,200 if the increasingly probable second rate rise does go ahead before Christmas. But gold’s bigger moves have been founded on more fundamental shifts in the market – the debasement of currency on a global basis, not just the easing that’s been applied to the US dollar, and an increasing sense that an established world order is beginning to pass on.
This creates uncertainty, which in turn is hard to trade. But that’s when traders turn to gold. So, given the impending liquidity event brewing at the Federal Reserve, it’s worth reflecting that back in the late 1970s and all the way up until the late 1990s gold and interest rates moved in tandem rather than in opposite directions.
There’s nothing written in the stars that says this dynamic won’t return. After all, the late 1990s was when the Fed began to let go of monetary policy and by the middle of the next decade non-intervention had become a matter of course.
With the mooted raise in December we are entering new territory and it’s not necessarily a given that gold will respond negatively. What might be more important is how the dollar itself behaves, and that may depend more on extraneous factors than today’s breed of insular Republicans might care to admit.
The dollar’s been stronger in recent days on the back of comments from Janet Yellen about inflation and the labour (labor) market, but these are short-term gyrations.
Longer-term for the dollar, for gold, and indeed for the entire commodities complex, key numbers will issue not only from the US, but also from China.
That’s why the latest growth figure, that the Chinese economy continues to expand at a rate of 6.7% per year, was broadly welcomed by the markets. This is a long way from the double digit growth that China put in during the last decade, but consider the size of the base the economy is now growing from.
Exponentially, the associated demand from each percentage point of growth is now that much greater.
So, to return to Investec’s analysis of recent trends in commodities - yes, the moves that governments make in the short-term can be significant for pricing.
But it’s in the longer-term that the real gains will be made.
And here the lines between government policy and markets start to become blurred. After all, if you’re selling metal or coal to a customer it doesn’t really matter to you if the customer is buying as a result of China’s One Belt One Road plan or as a result of US consumer demand.
But the distinction can in any case be turned in on itself - is China’s One Belt One Road plan, which is part of the wider five year plan, really an integral part of a well-thought out command economy? Or is it simply socialist window-dressing for an economy that’s increasingly becoming integrated into world capitalism?
If the latter is true, it brings with it its own set of risks and rewards. On the one hand, China’s suspiciously consistent growth figures may turn out to have been inflated and the credit bubble that’s been building up could burst.
But on the other hand, these Chinese state-run enterprises that have been setting the pace in mining deal-making for years now could eventually start to gain independence and that could set a whole new hare running in mining equity markets.
Investec doesn’t follow that line of thinking itself, but it has moved its investment cycle dial round a notch. We are one step away from boom-time conditions, the bank argues. Governments have set the scene. It’s up to markets to do the rest.