Commodity Index Growth
There has been dramatic growth in index-related commodity investments over the past two years. In particular, investments in gold and certain agricultural commodities like corn have expanded substantially, as the table below shows.
The Commodity Futures Trading Commission collects information on index investing in commodity markets. For this purpose, the investors include index funds, swap dealers, pension funds, hedge funds and mutual funds. Exchange-traded funds and exchange traded notes are part of the index activity.
These participants use both direct investments in futures markets and indirect investments through over-the-counter swap agreements with financial firms. The CFTC obtains information about both activities. For OTC agreements, the Commission uses "special call" requests for details of firms' market positions in physical commodity futures.
The data below is the notional value of futures contracts for all US markets with more than $0.5 billion of reported net notional value of index investment at the end of any one month.
Index Investment Growth
SOURCE: Commodity Futures Trading Commission, various reports
Gold is an outstanding example. Index-related gold futures activity - as defined above - fell from 2007 to 2008, reflecting the unusual circumstances at the time. By the end of 2009, conditions were more normal. From then to the time of the latest data release at the end of February 2011, the notional value of gold contracts approximately doubled.
This year gold futures have been the largest sector after crude oil, whereas in the past other commodities like natural gas drew far more activity than gold.
For a discussion of possible adverse effects from the inflow of capital into futures markets, see this issue's Inside Talk with Mack Frankfurter.