Commentary: The issue is volume, not price
There is a crisis looming in the world's commodity markets, but it is has nothing to do with high prices, food shortages or the "peak oil hypothesis."
It has everything to do with the flood of capital into new financial instruments tied to commodity prices.
The ongoing debate as to whether this new "investment" demand has caused a price bubble is misdirected. We should be paying attention to the economic damage being done by these new instruments, which are creating a level and type of volume for which the futures exchanges are ill-suited. In our search for strong and uncorrelated returns, the investment industry is undermining a commodity production and distribution system that has served well for over 100 years.
Historically, rising commodity prices have always attracted investor attention. This is the first commodity bull market, however, where individuals and institutions have participated, not as "speculators" but as "investors," treating commodities as an asset class....MORE
Speculators have been
tolerated to the degree
that they add economic
value through liquidity,
but not to the point that
they can manipulate prices.
Historically, rising commodity prices have always attracted investor attention. This is the first commodity bull market, however, where individuals and institutions have participated, not as "speculators" but as "investors," treating commodities as an asset class....MORE
Speculators have been
tolerated to the degree
that they add economic
value through liquidity,
but not to the point that
they can manipulate prices.
