Week-In-Review: In These Turbulent Times, We Must Look to the Big Mac

This week in metals started with a bang as gold dropped to below $1,100 an ounce on Monday, a one-day slide caused by the dumping of more than $500 million in bullion in early Asian trading.

Gold Bars Falling Showing Depression Recession And Economic Downturns
It’s raining gold prices! Not really, they’re just falling really fast.

And that was just the beginning. Market volatility was the rule, not the exception, this week. BHP Billiton reported earnings and warned of more write downs in its future, again showing the weakness of the iron ore market.

RELATED: Our 3 Best Practices for Buying Commodities

The View From China and India

Then there was the stock market crash in China. Many nations other than China are feeling the pinch from the loss of value experienced last week by investors. Foremost among them, India. India’s trade and industry body, The Associated Chambers of Commerce and Industry of India, said that steel and information technology are particularly vulnerable with their biggest trading partner reeling.

Now adjusted for GDP and local prices!

Look to the Big Mac!

With all of this market volatility is it any wonder that The Economist changed how it calibrates its Big Mac Index this week?

the old model is based on the theory of purchasing-power parity (PPP), the notion that, in the long run, currency exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries.

The new Big Mac Index tries to account for the argument that we would expect a product, in this case a Big Mac, to be cheaper in poorer countries because wages will be lower and  uses the relationship between prices and GDP per person to create a set of adjusted results.

It’s comforting to know that with markets volatile right now, and in the near future, we can still accurately tell the real price of a hamburger, whether that’s in the US, China, Australia, India or wherever the next disruption might come from.

Free Download: July Metal Price Forecast

Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to Top