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Wednesday, January 5, 2011

Commodity Futures Trading Commission to limit commodity positions

The Commodity Futures Trading Commission has introduced a plan to limit the size of futures positions by individual institutions. The idea is, no one entity should have a undo influence on commodity pricing.

Further commentary

Changing rules would likely take more than 90 days, due to process of changing rules. So while this change will not directly change the pricing of commodities in the near future, the writing is on the wall for a temporary decline.

I say temporary, since speculators drive price up on commodities when there is tight supply. For example , if the supply of corn was at an all time high, speculators would fail to drive the price up at all, due to all the excess available.

This measure, once enacted will be called as the fix for the commodity bubble. In reality, it will be temporary relief. Every year it is my position commodities will get tighter due to China, India, and other developing nations require more resources. Once the supply gets slightly tighter, the excess speculation will not be needed, and prices will resume their march higher.

keep in mind, temporary relief could be upwards of a year as the excess supply is consumed.

Only then, there will be no more tricks to stop the march.

1 comment:

  1. Hello,

    Thanks for your help, I will try that and will let you know how it goes. I hope I get it right this time.

    Futures Trading