UPDATED--Commodities and High Frequency Trading: Prices Being Driven By Price Moves Rather Than Fundamentals

Update: I forgot to link to the paper, here's the copy on the IMF's servers.
Original post:
This is a potentially big deal.
On the other hand it might just be the Europeans looking for more reasons to slow down or ban outright, HFT. More to come.
From Bloomberg:
Commodities Futures Driven by Price Moves, Not News, Study Finds

Commodity-future price moves rather than news are increasingly driving trade in oil, sugar and grain futures, which may make finding a fair price less efficient, according to a Swiss study. 

Since the middle of the 2000s, more than one out of two price changes in a number of commodity markets followed from an earlier price move, according to the study by Vladimir Filimonov and Didier Sornette at ETH Zurich and David Bicchetti and Nicolas Maystre at the Geneva-based United Nations Conference on Trade and Development.

The researchers analyzed intraday trading of oil and sugar in New York and London and corn, soybeans and wheat in Chicago, finding “high levels” of self-generated price moves.

“Price dynamics on these commodity markets are partly driven by self-reinforcing mechanisms,” the researchers wrote in the study published March 20 via the Social Science Research Network. “This evolution partly reflects the development of algorithmic trading and of high-frequency trading in particular.”

The European Parliament backed a proposal to limit high- frequency trading by introducing a 500 millisecond minimum holding period for any trade in October. A study by Bicchetti and Maystre published last year found an increase in high- frequency trading in commodities is boosting the short-term correlation with the prices of stocks and other assets.

Market orders based on technical analysis, herd behavior, margin calls on leveraged trades and stop-loss orders are among the mechanisms that can trigger so-called endogeneity, or price moves not generated by external information, Filimonov, Bicchetti, Maystre and Sornette said.

Trading Activity
A cascade of self-generated trading activity makes finding a “true price” take longer, a potential source of inefficiency or instability in the process of price discovery, according to the study....MORE 

John Kemp at Reuters also caught the study:
Fundamentals and behaviour in commodity prices

Fundamental changes in supply and demand account for less than a third of short-term movements in commodity futures prices, according to an authoritative new study by researchers at UNCTAD and the Swiss Federal Institute of Technology.

Reflexive trading, when prices respond to past price changes rather than new information about fundamentals, now accounts for 60 to 70 percent of price moves in the main futures contracts, up from less than 40 percent before 2005.

The authors examined price moves in Brent oil, U.S. crude, soybeans, sugar, corn and wheat futures using an elaborate procedure designed to separate movements related to the arrival of new information from those in which one price change begets another.

"We find an overall increase in the level of short-term endogeneity since the mid-2000s to October 2012, with a typical value nowadays around 0.6-0.7, implying that at least 60 to 70 percent of commodity price changes are now due to self-generated activities rather than novel information", according to Vladimir Filimonov, David Bicchetti, Nicolas Maystre and Didier Sornette in a paper published on March 21.

The paper marks a breakthrough in research into the formation of commodity futures prices. It brings research on commodity markets into the academic mainstream, integrating behavioural and fundamental approaches, and follows pioneering work in other asset classes by George Soros ("The Alchemy of Finance" 1987), Sornette ("Why Stock Markets Crash" 2003) and Robert Shiller ("Irrational Exuberance" 2009).

If their paper is correct, commodity futures markets may actually have become less efficient at discovering prices in recent years, not more, as a result of high-frequency trading and other aspects of financialisation.

Sornette is one of the world's foremost authorities on price formation and market microstructure, so the findings cannot easily be dismissed by researchers and policymakers who insist markets are efficient and all changes reflect fundamentals....MORE

We've visited with Sornette a few times most recently in Feb. 2013's "Innovation as a Social Bubble: The Example of the Human Genome Project".
He can be a bit of a flake but I'm guessing he's smarter than I.
See also:

Econophysicist Predicts Date of Chinese Stock Market Collapse--Part II
Forecasting Financial Crashes: The Ultimate Experiment Begins

And FT Alphaville's wonderfully titled "Dragon-king of the outlier events".