Something that has been bothering me for a long time is the idea that all of a sudden we have run short of a number of commodities (like all of them, but specifically oil, metals, etc.) and thus have seen incredible run-ups in the price of these goods, which in turn is creating a fair amount of inflation. The reason I have been bothered by this sharp price rise is that the world doesn't seem to be growing at a rate that would justify price spikes like we have seen. So I did some digging and low and behold it turns out my suspicions may be correct and what we actually may have is not any real shortages, but market manipulation by traders.
I have always wondered if their is any sound logic to allowing speculation by non-participants in commodity markets (especially those tied directly to our and other economies, like food, oil, etc). Obviously these markets are needed to help set the price of goods and to enable users or those reliant on these goods to hedge for their businesses (like airlines buying fuel futures, etc), but is it really in our national/international interest to allow me to buy and trade oil futures (which I can essentially do quite easily through the oil ETF (OIL).
Now, you may ask, how could you know if speculators are driving up the price of commodities and not actual shortages of said commodities. Well, it turns out their is a pretty easy way. You see, the production of virtually all of these commodities has been relatively stable (growing at but a few percent a year), so one would infer that the volume of options/futures traded for these commodities should also remain relatively stable (experiencing a similar growth rate) if just deliverable/hedged positions and actual users of said goods were represented in these markets. So, I pulled up the avg. yearly volume on the NYMEX/COMEX to see if I was wrong. Here are the numbers expressed as a percent increase in volume of contracts traded by year using 2001 as the base:
2002 - +40%
2003 - +0%
2004 - +22%
2005 - +25%
2006 - +35%
2007 - +28%
Link to volume table
So it seems what we have here is a situation where the price of commodities is not reflective of the realities of supply/demand/falling dollar, but in actuality a great portion of the price appears to be linked directly with speculation by investors who never intend on actually using/taking possession of the goods they are trading. This must be stopped with regulation, as we should not be enabling "investors" from bidding up the price of commodities that will lead to higher inflation and a wrecked economy. I would love to see either of our candidates address this issue.