It’s not just oil
It seems that those mysterious “speculators” (who pushed up the price of oil far beyond what appears sustainable in a slowing world economy) are at it again. Now it’s another kind of black gold that has caught the attention of the investment funds. WSJ:
Coffee prices are on the march…Demand has only edged up, and much of the recent surge is due to speculators hopping into the commodity…spurred by tight supplies of coffee beans and investors looking for the next commodity run-up, prices are boiling over. The price of green coffee beans has risen 22% since the beginning of the year…
investment funds have played a big role in the coffee run-up. On IntercontinentalExchange Inc.’s ICE Futures U.S., the world’s main coffee-trading arena — formerly known as the New York Board of Trade — coffee’s open interests, the number of unclosed positions, has shot up 50% over the past year. It is now at an all-time high of 191,977 contracts, according to the Commitments of Traders Report, published by the Commodity Futures Trading Commission. The increase in trading is widely attributed to investment funds.
United Kingdom hedge fund Armajaro Asset Management in October launched a commodities fund, called CC+, to focus on cocoa and coffee, and the fund expects to amass $500 million in assets. In February, it reopened another commodity fund, which was closed to investors in November…
Over and over and over again, the same thing happens and no one ever seems to learn. It’s all such good fun until that moment when the market turns — when it suddenly becomes no fun at all.
(Of course the trick for the smart fellows is to be early in creating huge buying momentum in these commodities with low or slow demand elasticity, which will attract momentum and other hedge funds, and then getting out in time for others to be left holding the bag. An ancient and honorable strategy practiced by the best?)