The Financialization of Commodities

Abstract

This report provides an analysis of the financialization process on the commodity market. Methods of analysis include linear regression between prices and amount invested for each commodity using the CFTC Swap Dealer Report, VaR, moving averages computations and charts to support our purpose. The report finds the financialization evoked in the literature is not relevant to explain volatility. Swaps, options and futures help producers and buyers of commodity by providing liquidity and risk management. The report also investigates the fact that the law of supply and demand for commodities is disrupted because of a new use of commodities: Companies tend to abandon inventory costs, which renders obsolete the mean reverting theory, commodities are not use for their initial purpose to produce goods or feed people but more and more for other purpose such as hydrocarburants or pur speculative investment which is called the flight-to-investment. The example of gold is striking. Long term perspectives such as the increasing worldwilde population and an emerging middle class which put pressure on the price are approached.