On 2/9/2011 1:49 PM, brad wrote:
> This is the Ghosh article that I was trying to find that clearly shows
> (with graphs) the relationship between the prices of commodities and
> the amount of money invested in commodity futures markets (the senate
> report does the same with numerous graphs and tables):
> http://www.wdm.org.uk/food-speculation/commodity-speculation-and-food-crisis-prof-jayati-ghosh
>
> The graph on page 6 shows clearly that as the amount of money invested
> in OTC futures contracts contracted in 2008 by 100 billion dollars,
> the price of commodities came crashing down. So no, not expectations
> but real flows of money explain the price changes.
The graph plots commodities prices against the outstanding *value* of commodities contracts. Of course the two are related - they're related almost by definition. All this is saying is that the price of commodities is related to the price of commodities contracts.
The question we're asking is about the concept of a net *flow* of money "into" commodity contracts. The chart doesn't attempt to show a flow, it shows a stock.
Also, let's be clear on what we're arguing about. I'm certainly not claiming that commodities markets never force prices to deviate from their fundamentals - i.e., that speculative price movements happen. What we're arguing about is what causes those speculative price movements - sentiment or some measurable "amount of money out there." The chart shows clearly that commodities prices fell sharply in 2008 even though the "amount of money out there" didn't fall, but rose.
SA