derryl

The Commodities ETF Crackdown Continues

I agree with Alan Young. If you're not a commodity producer or consumer then buying and selling futures is 'speculating', which is a zero sum game for speculators as a whole.

Let's assume that producers and consumers will sell and buy at market clearing prices. If speculators add buy money into this equation they can raise prices. But when they try to sell to realize gains the additional selling they add to the market drops the price at least as far as their buying raised it. Some speculators can make gains, but ALL of these gains are simply the losses of the other speculators in this market. John Stuart Mill pointed this out in his "Principles of Political Economy" published over 160 years ago, and the arithmetic hasn't changed.

One thing that has changed, though, is that there is now a huge volume of US dollars in the US and floating around the world, and the dollar is devaluing. So to hedge against currency devaluation people buy commodities and keep their money in this market. So the price is kept elevated for an extended period and will only drop to its true market level when all the speculators sell and take their money out. Speculators may suffer some losses at rollover time but if those losses are less than the amount the dollar is declining their hedge strategy is still working for them.

Meanwhile the price of the commodities is held higher than the 'pure' market price, with suppliers enjoying all the gains.