The influx of vast sums of money to accumulate long positions in the commodity markets is representative of hoarding and may constitute the making of a "market corner." This is effectively what the Pimco Commodity Real Return Strategy Fund (PCRAX) and other long-only index funds like it are doing. Inadvertently, each time retail or institutional investors invest in a long-only commodity-linked vehicle, they have actually created additional demand for that commodity, driving up the price of that commodity to be delivered in the future, in the same manner that additional demand for the immediate delivery of the physical commodity drives up the price on the spot market. How? As far as the market is concerned, the demand for the physical commodity that results from the purchase of a futures contract by a speculator is just as real as the demand for the physical commodity that results from the purchase of a futures contract by a commercial buyer or other user of the commodity.
In others words: are there enough physical commodities to meet the demand generated by the long future contracts?
Wow!
More, much more on https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
1 comment:
The tax cuts that lowered taxes on dividends from 35% to 15% and taxes on capital gains from 20% to 15% may not be extended if our congress has its way. Is this keeping the large money out of the market?
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