The gold price 100 years from now will be …

[] – HISTORY, so it’s said, tells us everything we need to know about the future. In the commodities market, that is somewhat worrying to know since the average real price of gold (inflation removed) since 1560 has been $500 per ounce. Concerned?

The average price has improved more recently: since 1960, the real price of gold has been $643/oz. Since 2000, however, it’s been something of a rollercoaster. Gold traded at $300/oz before racing up to $1,800/oz and is now charging down again. Will it though trade at its historic mean again?

“Well it spent 20 years trading below $600/oz and it’s only spent about 10 years trading above that,’ said Peter Major, an analyst for Cadiz Corporate Solutions. If that sounds like an installment from Cold Comfort Farm, consider then the wider implications of a speech delivered by seasoned commodities analyst, Jim Lennon, an analyst at Macquarie.

In an address delivered at the 100th anniversary of Metal Bulletin, a London-based metals magazine, Lennon attempted to set down some possible price scenarios for the metals complex for the next century; that is, to 2113.

The job is clearly impossible although he did observe, as with Major, some interesting long-term price comparisons, this time in respect of copper. Dr Copper, as it’s known as its movements prefigure broad economic changes, average $3.60 per pound ($/lb) in 1913 – pretty much the price at which it’s trading today.

The benefit of these price comparisons is to highlight the cyclicality of the mining industry. This may alarm some; but it can also provide a modicum of comfort for others. “What is clear,’ said Lennon, “. is that cycles will continue to be vicious and the events will continue to happen that no-one is prepared for.’

Lennon believed that twice in the recent history of the metals industry, analysts have attempted to consign the boom/bust motion of the sector to the scrap heap, as it were. This, he says, is folly.

Rather than just be fatalistic about the mining market, however, there are some interesting facts about the current stage of the cycle in which we find ourselves. The markets may be oversupplied amid a struggling European market and a slowing in China GDP growth. But metal demand is stimulated more by urbanisation than by population growth.

According to Lennon, the main driver of steel and metals demand growth over the past century has been urbanisation rather than absolute population growth. “Since 1913, the world population has risen five-and-a-half times from 1.3 billion to seven billion people, while the world’s urban population has risen almost 17 times to 3.7 billion people,’ he said.

“The world population is predicted by the United Nations to grow a further 1.3 times between now and 2050 to around nine billion people and then to level out – however, the urban population is projected to grow 1.7 times to 6.3 billion people or so.

“This suggests further steady growth in demand, albeit at a slower growth rate than in the recent past, concentrated in China and developing countries, including India, the Middle East, Eastern Europe and Africa – the role of Western Europe, the US and Japan will continue to diminish year by year,’ he said.