The suggestion that speculators deliberately manipulate markets to earn profits through bubbles and busts simply

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Commodity speculators do more good than harm

Nicolas Sarkozy, who is taking over the presidency of the G20, is set to use the role to champion measures to bring commodity investors to heel.

And American regulatory reforms include the introduction of mandatory position limits on trading in energy, metals and agricultural commodities early next year.

Those naturally inclined to dismiss any French efforts to regulate financial markets should note that Angela Merkel, Germany’s chancellor, is on his side too. And American regulatory reforms include the introduction of mandatory position limits on trading in energy, metals and agricultural commodities early next year.

There is almost no evidence to connect speculators to the commodity-price spikes that they are routinely blamed for creating

In particular, they supply liquidity and price information that makes futures markets more efficient

The suggestion that speculators deliberately manipulate markets to earn profits through bubbles and busts simply does not hold water

The explanation for the sudden spikes in the prices of many commodities in recent years lies in nothing more sinister than the laws of supply and demand.

When supply is tight, a small increase in demand can have a disproportionately large effect on price

that investors almost exclusively trade futures contracts. They rarely take physical delivery of raw materials and have no effect on the actual production and consumption of metal, grain or oil.

An OECD report suggests that there is little difference in volatility between exchange-traded agricultural commodities (such as wheat and corn) and non-exchange-traded ones (such as apples and onions).

It is the politicians, not the investors, who risk becoming the real villains in this affair.Read more at www.economist.com

 

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