When the Commodity Futures Trading Commission (CFTC) finally passes position limits on speculation will Gold and other commodities shoot through the roof or dive to reflect underlying demand level?
The correct answer is probably: Yes
The Gold Antitrust Action Committee (OTCPK:GATA) claims that market manipulation by the bullion banks is depressing the price of gold and silver so limiting the positions in monetary metals should result in a price rise. As most governments seem to be trying to devalue their currency it's difficult to figure out exactly how high gold could get. Some analyses indicate that gold won't get to bubble levels until it spikes above $2000 per ounce. In a currency devaluation race where every nation competitively devalues their currency against every other nation gold could become a marker that keeps getting batted higher so $2000 may become the bottom.
Other commodities such as copper seem to have a price well above that justified by demand and production costs so position limits would have the opposite effect on commodities if they are effective at reducing costs and speculative activity. The drop in nonmonetary commodities could be 50% or more.
Of course, the likelihood that regulations will be very forceful is low given past experience so commodities will probably act more like bubbles short term rather than well regulated, but boring, markets. Over time even mild limits should result in a more rationale market but price changes could be abrupt as traders try to figure out how to protect their positions.
We live in interesting times.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.