Speculation and Commodity Prices
MichaelÂ Masters’ recent testimony before the US Congress is being widely cited in support of the propositionÂ that speculation is having a big impact on upward and downward movements in commodity prices. As a long-standing futures market insider, he arguesÂ quite persuasively that institutional investors such as hedge funds have entered commodities futures markets in a huge way – a $250 Billion increase in trading since 2003 – and that the argument of soem economists that they do not impact prices becasue they do not take physical possession of the traded commodity does not hold water. Indeed, he states and seems to demonstrate that index speculators in futures markets directly impact on prices in spot markets. As he argues, if this were not so, there would be no regulations, and no regulator.