The value of metal investors and speculators

Although it may not be palatable to some people, the feeding frenzy behavior of groups such as the many investors in metals, constitutes a vital component of the market that provides price discovery for the metals that our mines produce for the world at large. We should remind ourselves most metal prices are not created in Canada.

The normal view most individuals have of such emotional or lemming-like behavior is that it is always those “other people,” mainly outside Canada, who do that sort of thing, never ourselves. We, of course, are not like that as we are naturally above such carryings-on. I’m reminded of that old phrase, “I’ve seen the enemy and they is us.”

As individuals, we feel quite innocent and separated from that ilk. However, when metal prices are rising, as they always do sooner or later, and we telephone our broker, like the blind termites, we do not see the thousands, possibly millions, of others world-wide who are enthusiastically doing precisely the same thing for the same reasons. That is to say greed, not to put too fine a point on it.

Computer displays showing instant changes in price, feed and intensify this process. Those corporations that elect to hedge their output or to sell it forward are also contributing to the establishment of that day’s prices, locking in an extra profit if the hedge is done properly. Herd instinct

Usually, this “madness of crowds” that has, of course, been observed in many other human activities, mainly acts on an uptick in a metal price and only rarely when a price is falling on its face (unless one includes the panic of those who try to sell out quickly.)

Taking action when a price is dropping is usually the preserve of the astute professional metals trader, a cool cat who has a heart of stone and a brain of ice. In this category I don’t include any young patter-wise employee in a broker’s office.

Incidentally, more and more mining companies are putting an experienced trader on their payroll who, at the very minimum, provides senior company managers with a far better comprehension of what is happening or is likely to in metal markets.

I’m reminded of the number of geologists, accountants and metallurgists I’ve met over the years who sincerely feel their discipline entitles them to pontificate on market prices and to do price analysis. Curiously, they would be appalled and affronted the other way round if, say, a construction engineer was fool enough to issue detailed geological theories or analyses. Stick to the experts

Actually, the belief that anyone can explain and predict metal prices is quite widespread. I have one piece of advice: never trust your own money or your company’s funds to such “market” worthies. A cobbler should stick to his last.

The best words I know of covering the herd behavior phenomenon are from Dr Harry Jarecki, a Yale metals millionaire who, around 1985, when the trading volume in silver was the fifth largest in the world (after gold, oil, coffee and rice), said the most important cause of the desire to speculate is the speculator’s desire for stimulation and his desire to feel he is participating in the central events of the world and that he is a somebody.

Without the market stimulation provided by them you can be certain our mines would be getting much lower prices, damaging or closing down companies and crippling their communities, not to mention the federal and provincial governments who receive large tax revenues from mineral operations.

Other speculative money supports mineral exploration, without which bonanzas such as Hemlo in northern Ontario would never have been developed so soon. Let’s raise a glass to risk-taking investors and speculators and trust that Canada can find more of them. T. P. (Tom) Mohide, a former president of the Winnipeg Commodity Exchange, served as a director of mining resourc es with the Ontario Ministry of Natural Resources prior to his retirement in 1986.