Speculation + Manipulation = Intervention?

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This time around the fund managers were smart. Instead of putting money in questionable investments, they decided to invest it in commodities. Relaxed limits by the U.S. Commodity Futures Trading Commission on how much money could be pumped into the grain trade by hedge funds, index funds and pension funds, helped them a lot.

The price rises over the past year of all commodities including food grains are a testament to this manipulation. Minor climatic events in Australia and elsewhere have cut into food grain production, but these have been balanced by huge increases in the overall production of wheat, coarse grains, pulses and rice in India and elsewhere.

Speculators are busy informing the public that it is not their fault, claiming it is increased demand by prosperous China and India creating price volatility. This is a flimsy argument. India does not plan to import any wheat this year. This behavior is puzzling to an unseasoned watcher. Even the very investigative U.S. media have missed the connection between hedge funds and high grain prices. They have fallen for the propaganda that since oil prices have quadrupled, other commodity prices have to follow suit. This argument is also absurd. The oil component in grain production is about 17 to 19 percent. This alone would not triple production costs.

Since the inevitable has happened, what is next? Do we have to let a few rich and powerful people in Chicago, Kansas or New York mess with the world food supply? Should the U.S. government not get investment funds out of the grain trade? Should funds managers not be penalized for messing with the fragile supply and demand of the world's food?

If the CFTC acts, will this bubble in the commodity market burst? Probably, yes. Wide price swings in the grain market, well above industry fundamentals, will belong to the past. Wheat and other grain prices will return to their real value under normal pricing structures. Speculative money is undermining the world order and it is a dangerous game. The U.S. regulatory agency must step in soon; otherwise, civil unrest will become the norm."

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The above findings and opinions aside, you have - by now - heard threats and promises from Mrs. Clinton regarding OPEC and the current oil situation. Regulators are looking into the goings-on in the oil market for irregularities and/or evidence of manipulation. We would remain on a careful watch regarding such developments as their impact could be felt widely across the commodities sector.

For the moment, the focus remains on the dollar's spring bloom and on the oil story. Progress may become a bit more difficult as we head towards the weekend. Look to India for support. Hope it comes.

Happy Trading.