According to Barclays, there was $141 billion “invested” in commodities in 2006. Five years later and that figure has ballooned up to $431 billion. The ETFs and ETNs are a big part of that, but not all of it – globalized competition for resources and more trading from hedge funds and investment banks have a hand in this as well.
The adults in the room are putting together a handful of rules and regs that they believe may keep things from getting out of hand. These will be highly controversial to the various types of players who live and breathe these markets. Here’s The Economist with the gist:
As part of a new financial-reform law, the Commodities Futures Trading Commission (CFTC) is proposing “position limits” on the amount of derivative contracts, including futures and swaps, a trader can hold for 28 commodities. No one will be allowed to control more than 25% of deliverable US supply for these commodities, which include oil, corn and gold, unless they are hedging for “bona fide” commercial purposes. CFTC commissioners could vote on the new rules as soon as September 22nd. Egged on by the likes of Mr Sarkozy, the European Commission is likely to issue a draft of similar rules in October.
The magazine rightly points out that talk about position limits usually comes about after an upward spike in prices – politicians are nothing if not perpetually behind the curve and publicly playing catchup.
We’ll see if the CFTC is really going to bare its teeth here. What also may get interesting is to see how the makers of ETPs like $GLD and $SLV react (or if they even need to) – as well as whether this leads to a further pullback from the oil markets by Morgan Stanley and Goldman Sachs.