The New Chemistry of Speculation

Topics: Futures contract, Iron ore, Chicago Board of Trade Pages: 2 (527 words) Published: May 23, 2013
1. In May, Credit Suisse and Deutsche Bank began offering investments in what commodity?

In May, Credit Suisse and Deutsche Bank began offering investments in the iron ore commodity, a key component of steel, second most traded commodity in the market after crude oil. This commodity is mined copiously, around one billion tons per year, but with the limitation of being traded on futures exchanges.

2. Are lawmakers justified in their concerns that speculation is driving up commodity prices?

Yes, they are. I agree with the lawmakers in their concern that speculation is driving up commodity prices in general. It’s very alarming the surge in investments by big institutions such as pension funds and university endowments allocating money to commodities tied to indexes that track future exchanges. Seeing how big institutions have invested $260 billion in commodities compared with $13 billion that they used to invest only 5 years ago. Additionally, there are many economist and investors that attributes high commodities prices to demand for emerging economies and production squeezes. As proof this we have iron ore that although it wasn’t traded on a futures exchanges and its price surged last year, the price Chinese steelmaker pay to Australian miners has nearly doubled. These same index speculators have also been driving up prices for oil and other natural resources. I think something needs to be created in order to limit what investors can channel into commodities they don’t intend to own. As mentioned on this article, it is going to be very hard to curb commodities speculation, and this trading is spreading fast to an array of others goods that as the iron ore have been off-limits to investors because they aren’t traded on future markets. A real example is how the iron ore deals became in only two month one of the biggest commodities markets.

3. What happens during the monthly settlements on the iron ore contracts created by Credit Suisse...
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