The following is an excerpt from the recently released European Commission report on commodity derivatives The two charts, from the St. Louis Fed, illustrate the parabolic rise in Commodity Index-Funds over the past 8 years and the huge increase in correlation of commodities and equities.
This has gotten Sarkozy & Co all lathered up and he will likely use the French Presidency of the G20 to push tough reforms of commodity derivatives in the next year. Be sure to keep this on your radar as not to be blindsided.
The financialization of commodities is a symptom of lose monetary policy and global imbalances of the past 10 years, in our opinion. After all, the money to speculate has to come from somewhere.
We are sympathetic to limiting speculation in energy and foodstuffs, which can cause economic and social damage, but policymakers are mistakenly treating the symptom rather the root cause. Furthermore, gold is a relatively benign store of value — food and energy are not — and should be supported as such. (click here if charts are not observable).