In every case, removal of the noncommercial

positions of index traders causes the

noncommercial market share to drop. In the case

of the large contracts, the noncommercial

position declines to around 10 percent. This

suggests that long-side speculation, as

measured by most analysts who follow these

data, accounts for less than 10 percent of market

share when adjusted for the role of index fund

investors.

The comparatively modest role played by

speculators as defined by most analysts seems

to suggest that these participants in the markets

are relatively unimportant contributors to the

price rise. Let me repeat my comment in a

different way. If, as the data suggest, real

long-side speculators account for only a modest

share of the market, then these traders cannot

account for the large price increases noted

recently. The so-called “price bubble” must have

another explanation. I suggest that the

capitulation of central banks to inflation explains

the price rise. I would add that the increase is not

the result of a bubble. It has come, instead, from

the inability of policymakers to address important

structural imbalances in the economy.

Looking forward, this analysis may have

important implications for those thinking about

shorting the market. (Here I include those who

might want to take a speculative short on the

market, as well as firms that are considering

hedging production.) These data suggest that

structural change has imparted a new upward

bias in prices. It seems that the excess demand

from one class of buyers of commodities (index

funds) has created a price floor. The data

suggest that any short-run price decline will be

treated as a buying opportunity by those

investing in commodities as an asset. If my

conjecture is correct, one should expect to see

prices biased upward for the foreseeable future.

This bias can only increase as speculators who

might short the market realize that the odds of

success have decreased.