Many pundits have blasted speculators such as hedge funds for the huge volatility of commodity prices over the past few years, arguing that these speculators have manipulated markets.
Regulators have backed up the criticism with investigations of some of the speculators. But there’s another possible source of the volatility: good old commodity index mutual funds and exchange-traded funds, writes Gillian Tett of The Financial Times.
These funds, of course, are largely the provenance of individual investors. And they have surged in assets to about $200 billion from $15 billion in 2003.
U.S. regulators are now looking at the impact of these funds. And the investigations could turn public focus to the issue.
“The nature of investors has changed in a way that affects price movements,” the head of one central bank told the FT. “We need to understand more.”
(Getty Images photo)
Commodities have taken a prominent role in financial markets over the past few years, with investors enjoying bountiful returns on their commodity purchases and seeking the asset class to diversify their portfolios.
Investment legend Jim Rogers sees a continuation of the long-term rally for commodities. “I'm long commodities, mainly its commodities and currencies,” he tells The Globe and Mail of Toronto.
And Rogers is unfazed by commodities’ recent pullback. “Markets correct all the time. . . . It's good for the market as far as I'm concerned.”
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