"The latest update to our measure of commodity speculation shows that there is
still considerable speculation on commodities. By our reckoning, commodities
with listed futures are now about 54% above prices that could be explained by
fundamental supply and demand factors. As the chart on the next page shows,
this has come down a bit, but is still extraordinarily high relative to history.
As a reminder, this measure of speculation is based on the spot prices of
industrial commodities that trade listed futures versus the spot prices of
commodities that do not trade listed futures. Our theory is that one is more likely to speculate in the futures markets than by hoarding physical commodities. Thus, the spot prices of the unlisted commodities should be based more on fundamental supply/demand factors, whereas the spot prices of listed futures would be based on fundamentals plus or minus some speculative premium or discount. We continue to be concerned about the possibility of a cyclical bear market in commodities." ML US Strategy