Commodity index fund

A commodity index fund is a financial product whose value is based on a various commodity futures.^[1]

The first was the Goldman Sachs Commodity Index, created in 1991.^[1]

Other commodity index funds:

• JP Morgan (1994)^[1]
• AIG Commodity Index^[1]
• Chase Physical Commodity Index^[1]
• Bear Stearns^[1]
• Oppenheimer^[1]
• Pimco^[1]
• Barclays^[1]

In 2005 Gorton and Rounwehorst of Yale published "Facts and Fantasies About Commodities Futures", which pointed out relationships between a commodities index and the stock market, and inflation.^[1]

Harper's article

A 2010 article in Harper's by Frederick Kaufman alleged that these Commodity Index funds were part of the global food crisis in 2008, including riots in 30 countries, a food price rise of 80 percent between 2005 and 2008, and an increased hunger rate. The article claimed that one mechanism involved was a 'demand shock' on wheat futures caused by the index funds, resulting in a 'contango' wheat market on the Chicago Mercantile Exchange. This allegedly caused prices of wheat to rise much higher than normal, defeating the purpose of the exchanges (price stabilization) in the first place.^[1]

Futures Industry Association

Leah McGrath Goodman, a reporter with experience covering commodities markets, described an experience writing about the Goldman Sachs Commodities Index in her book "The Asylum". Around 2007, she wrote an article for the Futures Industry Association trade magazine about the indexes. She concluded the massive amount of money in the indexes following the oil futures market dwarfed the actual oil futures market, by around 5 to 1. She alluded to the theories of Milton Friedman, who believed that inflation was caused by "too many dollars chasing after too few goods". She concluded that the indexes were apparently thus causing oil prices to rise. Her article was dropped after a man from the FIA magazine showed it "to people around Washington" and told her it would be "politically explosive". ^[2]

See also

• Contango

Refs

1. ^ ^{a b c d e f g h i j k} "The Food Bubble", Frederick Kaufman, Harper's, 2010 July
2. ^ The Asylum, Leah McGrath Goodman, 2011, Harper Collins, p 327- 328

External links

• The Food Bubble: How Wall Street Starved Millions and Got Away With It - video report with Frederick Kaufman by Democracy Now!