Financial Speculation and Commodity PricesProfessor Dr. Heiner Flassbeck

DirectorDivision on Globalization and Development Strategies

UNCTADDominican Republic, March 2011

ESTIMATED INDEX TRADER POSITIONS AND ESTIMATED INDEX TRADER POSITIONS AND COMMODITY PRICES, JANUARY 2006–MAY 2009COMMODITY PRICES, JANUARY 2006–MAY 2009

(Index numbers, 2006 = 100)

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

220

1 2 3 4 5 6 7 8 9 10 1112 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 1112 1 2 3 4 5

2006 2007 2008 2009

Estimated net long positions of commodity index traders

S&P GSCI non-energy official close index

S&P GSCI energy official close index

Financial Investment in Commodities Strongly Increased

since 2005

Source: BIS, Quarterly Review, December 2010, table 23B. Source: BIS, Quarterly Review, December 2010, table 22A.

Figure 1: Futures and options contracts outstanding on commodity exchanges, contracts, million, Dec 1993 –

September 2010

0

10

20

30

40

50

60

70

Dec.1993 sept-96 Jun.1999 mars-02 Dec.2004 sept-07 Jun.2010

Figure 2: Notional amount of outstanding over-the-counter commodity derivatives, December 1998 – June 2010,

$trillion

0

2

4

6

8

10

12

14

Dec98

Dec99

Dec00

Dec01

Dec02

Dec03

Dec04

Dec05

Dec06

Dec07

Jun08

Dec08

Jun09

Dec09

Jun10

Gold Other precious metals Other commodities

Commodity index traders in agricultural products in the USA

Source: UNCTAD secretariat calculations, based on CFTC.Note: The positions of commodity index traders are estimated based on index trader positionsreported in the CFTC's Commodity Index Trader Supplement.

Commodity index trader positions in agricultural products on commodity exchanges in the United States,January 2006 – February 2011

(Index numbers, January 2006=100)

Figure 3:

100

120

140

160

180

200

03/01/2006 03/01/2007 03/01/2008 03/01/2009 03/01/2010 03/01/2011

Ind

ex (

3 Ja

nu

ary

200

6 =

100

)

30-Day Rolling Correlation between Oil Price and BRL/JPY

From almost no correlationuntil early2000s

Thecorrelationhas increasedsharplywhile the distribution is more concentrated

30-Day Rolling Correlation between DJ UBS Agriculture Total Return Index and

USD/BRL

Same story for agricultural goods

Thecorrelationhas alsoincreasedwhile the distribution is also more concentrated

30-Day Rolling Correlation between DJ UBS Agriculture Total Return Index and

BRL/JPY

Same story for agricultural goods

Thecorrelationhas alsoincreasedover the last years

EVOLUTION OF PRICES IN SELECTED MARKETS AND COUNTRIES, OCTOBER EVOLUTION OF PRICES IN SELECTED MARKETS AND COUNTRIES, OCTOBER 2008–JUNE 20102008–JUNE 2010

(Index numbers, 1 OCTOBER 2010 = 100)Equity markets

0

25

50

75

100

125

150

175

1/10/2008 1/2/2009 1/6/2009 1/10/2009 1/2/2010 1/6/2010

Budapest Stock Exch Index (Hungary)Jakarta Composite Index (Indonesia)FTSE/JSE Africa All Shr (South Africa)Mexico Bolsa Index

Commodity markets

0

25

50

75

100

125

150

175

1/10/2008 1/2/2009 1/6/2009 1/10/2009 1/2/2010 1/6/2010

S&P GSCI Cotton Official Close Index

S&P GSCI Brent Crude Official Close Index

S&P GSCI Copper Official Close Index

National bond marketsa

0

25

50

75

100

125

150

175

1/10/2008 1/2/2009 1/6/2009 1/10/2009 1/2/2010 1/6/2010

Japan New Zealand

United Kingdom United States

Currency markets

0

25

50

75

100

125

150

175

1/10/2008 1/2/2009 1/6/2009 1/10/2009 1/2/2010 1/6/2010

Australian dollar to Japanese yen

New Zealand dollar to Japanese yen

Brazilian real to Japanese yen

DAILY MOVEMENTS OF PRICES AND RETURNS BETWEEN 11/2008 AND 11/2009 DAILY MOVEMENTS OF PRICES AND RETURNS BETWEEN 11/2008 AND 11/2009 IN RELATION TO THE EXCHANGE RATE OF THE BRAZILIAN REAL TO THE JAPANESE YENIN RELATION TO THE EXCHANGE RATE OF THE BRAZILIAN REAL TO THE JAPANESE YEN

R2 = 0.6938

165

175

185

195

205

215

225

0.018 0.02 0.022 0.024 0.026 0.028

Brazilian real to Japanese yen

S&

P G

SC

I N

on

-en

erg

y O

ffic

ial

Clo

se I

nd

ex

R2 = 0.8286

7 000

7 500

8 000

8 500

9 000

9 500

10 000

10 500

11 000

11 500

12 000

0.018 0.02 0.022 0.024 0.026 0.028

Brazilian real to Japanese yen

S&

P C

om

po

site

In

dex

R2 = 0.7907

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

0.018 0.02 0.022 0.024 0.026 0.028

Brazilian real to Japanese yen

Un

ited

Sta

tes

Yie

ld o

n 1

0-ye

ar B

on

d

R2 = 0.8781

300

350

400

450

500

550

600

650

700

0.018 0.02 0.022 0.024 0.026 0.028

Brazilian real to Japanese yen

S&

P G

SC

I B

ren

t C

rud

e O

ffic

ial

Clo

se I

nd

ex

Correlation between day-to-day price movements of currencies of selected countries (in relation to Japanese Yen) and selected equity prices indices,

commodity price indices and CDS spreads, January 2008 - January 2010

R2 = 0.8081

0.2160

0.2360

0.2560

0.2760

0.2960

0.3160

0.3360

0.3560

0.3760

0.3960

4308 5308 6308 7308 8308

Swiss Market Index

Russian Ruble

R2 = 0.898

0.0144

0.0164

0.0184

0.0204

0.0224

0.0244

0.0264

199 299 399 499 599

S&P GSCI CoppOfficial Close Index

Brazilian Real

New Turkish Lira

R2 = 0.8008

0.01

0.01

0.01

0.01

0.01

0.02

0.02

0.02

0.02

2 3 3 4 4

Sweden Yield on a 10-year bond

Australian Dollar

R2 = 0.8062

0.01

0.01

0.01

0.01

0.02

0.02

197 297 397 497 597

Hungary CDS USD Spread 5 Y

Business cycle analysis(1980)

50

60

70

80

90

100

110

120

-24-22-20-18-16-14-12-10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48

IP_MIXED

Price index - All groups (in terms of current dollars)

Business cycle analysis(1982)

80

90

100

110

120

130

140

150

160

170

-24

-22

-20

-18

-16

-14

-12

-10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48

IP_MIXED

Price index - All groups (in terms of current dollars)

Business cycle analysis(2001)

90,0

100,0

110,0

120,0

130,0

140,0

150,0

160,0

170,0

-24

-22

-20

-18

-16

-14

-12

-10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48

IP_MIXED

Price index - All groups (in terms of current dollars)

Business cycle analysis(2009)

80,0

90,0

100,0

110,0

120,0

130,0

140,0

150,0

160,0

170,0

-24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22

IP_MIXED

Price index - All groups (in terms of current dollars)

Financial announcement effects on the price of oil

Economic announcement effect on WTI futures on January 14th 2011

90.8

91

91.2

91.4

91.6

91.8

92

92.2

92.4

13:3

0:00

13:3

6:00

13:4

2:00

13:4

8:00

13:5

4:00

14:0

0:00

14:0

6:00

14:1

2:00

14:1

8:00

14:2

4:00

14:3

0:00

14:3

6:00

14:4

2:00

14:4

8:00

14:5

4:00

15:0

0:00

15:0

6:00

15:1

2:00

15:1

8:00

15:2

4:00

15:3

0:00

15:3

6:00

15:4

2:00

15:4

8:00

15:5

4:00

16:0

0:00

16:0

6:00

16:1

2:00

16:1

8:00

16:2

4:00

16:3

0:00

16:3

6:00

16:4

2:00

16:4

8:00

16:5

4:00

17:0

0:00

17:0

6:00

17:1

2:00

17:1

8:00

0

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400

500

600

700

800

900

1000

WTI VOLUME

WTI LAST_PRICE

US Business Inventories

Consumers expectationsCPI and retail

sales

Financial announcement effects on the price of oil + cocoa

Employment announcement effect (rebased series), 03.12.2010

98.7

99.2

99.7

100.2

100.7

101.2

101.7

13:0

0

13:1

2

13:2

4

13:3

6

13:4

8

14:0

0

14:1

2

14:2

4

14:3

6

14:4

8

15:0

0

15:1

2

15:2

4

15:3

6

15:4

8

16:0

0

16:1

2

16:2

4

16:3

6

16:4

8

17:0

0

0

500

1000

1500

2000

2500

3000

3500

WTI Volume

WTI FuturePriceCocoa FuturePrice

Employment announcement at 14.30 (CET)