According to this Greg Meyer piece in the FT, Barclays estimates that $6 billion have flowed out of commodity index investments in 2012, and that many institutional investors are reducing exposure to commodities.
The anti-speculation frenzy that reached a peak in 2008, but has never gone away, is predicated on the belief that index investing-”massive passives” in the words of CFTC Commissioner Bart Chilton-exert a disproportionate influence on prices. So, this outflow of indexing money should have led to a decline in commodity prices right? But they have been up over 2012: one broad index, the UBS Bloomberg CMCI is up from 1520 at the end of 2011 to 1628 today, about a 7 percent increase.
But the anti-speculation folks have their story, and they’re sticking with it. Sayeth Dennis Kelleher of “Better Markets”, “There’s excessive speculation in commodity markets which is driving up prices.” QED.
Evidence? We don’t need no steekin’ evidence.
Ironically, I am in NY to speak at the CME Group’s First Annual Global Commodity Investment Roundtable, an event aimed precisely at fund managers, where I will be on a panel discussing the role of speculation. Greg’s article tees that up very nicely.