by Clifford J. Sherry
If you know the price of a commodity today, can you predict the price tomorrow? A week from
tomorrow? A month from tomorrow? Can you predict whether the price will increase or decrease and by
how much? The answer to that question depends on who you ask. Some people, like technical analysts,
who use such things as charts and moving averages, believe that you can. Others do not.
One reason this question is so difficult to answer is there is no general agreement about how commodity
prices are 'generated.' If the underlying 'process' is random and/or independent, you probably cannot
'predict' price movement. But, if this is not true, if it is either non-random and/or dependent, some
'pattern' exists in commodity prices, and with the appropriate 'tools' you should be able to detect the
'pattern.' It is important to understand that randomness and independence are separate and distinct
From a technical standpoint, randomness and independence are relatively difficult to define, but an
analogy will help. For example, fill a small urn with 50 white and 50 black balls. Take out one ball at a
time, write down its color and replace it, take out another, etc. If you do this repeatedly, you will
'generate' a random and independent sequence. It is random because each and every ball has an equal
chance of being selected. It is independent because the choice of the first ball had no effect on the
selection of the second and succeeding balls.