dilettantedude

'Index Speculators' Hoarding Commodities

I'm always baffled by anyone who thinks instutions and other speculators can 'hoard' futures contracts. Do these people believe the hedgers and university endowments and union pension funds are actually taking delivery of tons of wheat or ships full of oil???

Look, they buy 6 month futures contracts. A month before expiration they sell them and buy more 6 months (or whatever) contracts. There is no hoarding. There is no net buying. The futures buys and sells exactly cancel each other out. This means that futures prices must converge to cash prices in the spot market each day.

Next time you hear someone blame rising commodities prices on futures speculation, ask them to explain that.