This is part two of a two-part series. Click here to read the first part.
Yesterday, we talked about predictive markets and touched on their applicability to metal markets in general. Without surveying all of the literature, suffice it to say that predictive markets, can be much more accurate than traditional polling techniques or other analytical methods. So given the fact that there are dozens of research firms and analysts covering the metal and mining sector, why are there no predictive markets (at least, we couldn’t find one), with the exceptions noted from the comments in yesterday’s post (e.g. the futures markets for aluminum, copper and the balance of base metals).
To begin, there are several “must-haves” for a predictive market to work. And perhaps not surprisingly, many of these must-haves relate to the requirements of all markets in general. They all need liquidity or people to take positions. One of the primary reasons why the steel long products futures market has not come on stream, in our opinion is due to lack of liquidity on the producer side. See an earlier MetalMiner post on that subject here. (more…)