IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v36y2011i3p187-195.html
   My bibliography  Save this article

Investor demand and spot commodity prices

Author

Listed:
  • Tilton, John E.
  • Humphreys, David
  • Radetzki, Marian

Abstract

The on-going debate over the influence of investor demand on spot commodity prices largely attempts to assess this influence by measuring the growth in investor demand in recent years. Given the serious data problems that plague such analyses, this article pursues another approach in the hope of providing useful insights into the impact of investor demand on spot commodity prices. It focuses on the mechanisms by which investor demand affects spot prices, and in particular on two questions. First, how does an increase in investor demand on the futures markets affect the spot market and spot price? Second, when investor demand is increasing and pushing a commodity's price up, do physical stocks of the commodity also have to be rising, as economists and others widely assume? On the first question, the article concludes that a surge in investor demand raising prices on the futures markets will have a direct and comparable effect on the spot market prices when these markets are in strong contango. However, when markets are in weak contango or backwardation, price movements in the futures markets have a much looser effect on spot prices. As a result, changes in investor demand on the futures markets may have little or no influence on spot prices in the absence of a strong contango. Instead, changes in fundamentals (that is, producer supply and consumer demand) and possibly changes in investor demand taking place directly on the spot market largely determine the spot price at such times. On the second question, the article shows that investor demand can be pushing up a commodity's price even when investor stocks are falling, despite the widespread presumption to the contrary.

Suggested Citation

  • Tilton, John E. & Humphreys, David & Radetzki, Marian, 2011. "Investor demand and spot commodity prices," Resources Policy, Elsevier, vol. 36(3), pages 187-195, September.
  • Handle: RePEc:eee:jrpoli:v:36:y:2011:i:3:p:187-195
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420711000079
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:jrpoli:v:54:y:2017:i:c:p:130-136 is not listed on IDEAS
    2. Stepanek, Christian & Walter, Matthias & Rathgeber, Andreas, 2013. "Is the convenience yield a good indicator of a commodity's supply risk?," Resources Policy, Elsevier, vol. 38(3), pages 395-405.
    3. repec:eee:rensus:v:77:y:2017:i:c:p:899-915 is not listed on IDEAS
    4. Fernandez, Viviana, 2016. "Further evidence on the relationship between spot and futures prices," Resources Policy, Elsevier, vol. 49(C), pages 368-371.
    5. Tilton, John E. & Humphreys, David & Radetzki, Marian, 2012. "Investor demand and spot commodity prices: Reply," Resources Policy, Elsevier, vol. 37(3), pages 397-399.
    6. Gulley, Andrew & Tilton, John E., 2014. "The relationship between spot and futures prices: An empirical analysis," Resources Policy, Elsevier, vol. 41(C), pages 109-112.
    7. repec:eee:jrpoli:v:53:y:2017:i:c:p:135-146 is not listed on IDEAS
    8. repec:bla:sysdyn:v:32:y:2016:i:3-4:p:279-308 is not listed on IDEAS
    9. repec:eee:jrpoli:v:53:y:2017:i:c:p:300-316 is not listed on IDEAS
    10. Glöser, Simon & Tercero Espinoza, Luis & Gandenberger, Carsten & Faulstich, Martin, 2015. "Raw material criticality in the context of classical risk assessment," Resources Policy, Elsevier, vol. 44(C), pages 35-46.
    11. Antonakakis, Nikolaos & Kizys, Renatas, 2015. "Dynamic spillovers between commodity and currency markets," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 303-319.
    12. Haase, Marco & Seiler Zimmermann, Yvonne & Zimmermann, Heinz, 2016. "The impact of speculation on commodity futures markets – A review of the findings of 100 empirical studies," Journal of Commodity Markets, Elsevier, vol. 3(1), pages 1-15.
    13. Fernandez, Viviana, 2016. "Futures markets and fundamentals of base metals," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 215-229.
    14. Radetzki, Marian, 2013. "The relentless progress of commodity exchanges in the establishment of primary commodity prices," Resources Policy, Elsevier, vol. 38(3), pages 266-277.
    15. Arık, Evren & Mutlu, Elif, 2014. "Chinese steel market in the post-futures period," Resources Policy, Elsevier, vol. 42(C), pages 10-17.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:36:y:2011:i:3:p:187-195. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/30467 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.