Exchange traded funds (ETFs) have granted millions of ordinary investors entree into some of the most esoteric asset classes. A case in point: commodities. The regulators are once again taking notice.
If you haven’t noticed, commodity prices are quick approaching stratosphere territory. As hedge funds, pensions, mutual funds and ETFs increase their holdings in various commodities, regulators are toying with the idea of limiting the amount that any one trader can bet in markets for energy, metals and agricultural products. [Have Commodity ETFs Topped Out?]
The Commodity Futures Trading Commission (CFTC) is under increasing pressure to meet a January deadline set by the Dodd-Frank Wall Street reform law, which requires the regulator to set limits on how many commodity futures contracts in energy and metals a speculator can own, reports Carolyn Cui and Susan Pulliam for The Wall Street Journal.
Many argue that speculators are distorting the markets, making it harder for producers and users of commodities to manage their risk and muddying the normal supply-demand fundamentals. [The Benefits of Commodity ETFs.]
Commodities have been among the best-performing asset classes this year. Long-only commodity ETFs have seen their assets jump more than 30% year-over-year while headlines about gold, silver, wheat and cotton dominated the news. Investors have dumped $121.2 billion into commodities since the start of last year.
Working in speculators’ favor, though, is the fact that the increase in speculative positions hasn’t necessarily increased commodity prices. For example, the CFTC was unable to draw a definitive link between oil’s record surge in 2008 and market speculation.
- SPDR Gold Shares (NYSEArca: GLD) is up 25.6%
- PowerShares DB Agriculture (NYSEArca: DBA) is up 14.8%
- ETFS Physical Silver (NYSEArca: SIVR) is up 67.3%
- iPath DJ-UBS Copper (NYSEArca: JCC) is up 19.5%
- iPath DJ-UBS Cotton (NYSEArca: BAL) is up 80.6%
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.