Salient to Investors:
The Centre for European Policy Studies said:
- Trading houses active in multiple commodity markets have built up physical holdings through the use of financial leverage and easy access to financing, creating a possible systemic risk.
- The 10 largest trading houses had $1 trillion in revenue in 2011, and could potentially become too physical to fail.
- Linking of the global physical commodity markets with the financial system and accommodating monetary policy have raised the effect of the economic cycle and commodities’ vulnerability to short-term shocks coming from the financial system.
- Demand and supply fundamentals remain solid long-term drivers of commodity futures’ prices in all studied markets, including oil, natural gas, iron ore, aluminum, copper, wheat, corn, soybean oil, sugar, cocoa and coffee.
- The role of non-commercial operators in commodity markets has been generally benign, and the growth of index investments has yet to cause distortions in prices.
- That the size of futures markets compared to physical markets may distort price formation could be neither proved nor ruled out.
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