Issues Involving the Use of the Futures Markets to Invest in Commodity Indexes

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Correspondence issued by the Government Accountability Office with an abstract that begins "Until mid-2008, prices for a broad range of physical commodities, from crude oil to crops such as wheat, had increased dramatically for several years--raising concerns and leading to a debate over the possible causes. Some market participants and observers have attributed the price increases to fundamental economic factors related to supply and demand. Others have suggested that the price increases resulted from speculation in the futures contracts by hedge funds and investors in commodity indexes. Like stock indexes, commodity indexes track the composite price of a basket of ... continued below

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United States. Government Accountability Office. January 30, 2009.

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Description

Correspondence issued by the Government Accountability Office with an abstract that begins "Until mid-2008, prices for a broad range of physical commodities, from crude oil to crops such as wheat, had increased dramatically for several years--raising concerns and leading to a debate over the possible causes. Some market participants and observers have attributed the price increases to fundamental economic factors related to supply and demand. Others have suggested that the price increases resulted from speculation in the futures contracts by hedge funds and investors in commodity indexes. Like stock indexes, commodity indexes track the composite price of a basket of long futures positions in physical commodities. The indexes' investment strategy is passive, remaining the same regardless of whether prices are falling, rising, or flat. Two commonly referenced commodity indexes are the Standard & Poor's Goldman Sachs Commodity Index (S&P GSCI) and Dow Jones-American International Group Commodity Index (DJ-AIGCI), which are based on a broad range of physical commodities, including energy products, agricultural products, and metals. Since around the mid-2000s, pension plans, endowments, and other institutional investors increasingly have used investments in commodity indexes to obtain exposure to commodity prices as an asset class, typically to diversify their portfolios or hedge inflation risk. To prevent excessive speculation that could cause unwarranted changes in futures prices, the Commodity Futures Trading Commission (CFTC) and futures exchanges place limits on the size of futures positions--the number of contracts--that a trader may hold. In agreement with your office, this report addresses (1) whether the federal law governing futures trading prohibits investors from using the futures markets to gain an exposure to commodity indexes, (2) whether the federal law governing pension plans prohibits them from investing in commodities through the futures markets, (3) how margins have affected the ability of investors to obtain exposures to commodity indexes, and (4)how position limits have affected the ability of investors to obtain exposures to commodity indexes."

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Government Accountability Office Reports

The U.S. Government Accountability Office (GAO) is an independent, nonpartisan agency that works for the U.S. Congress investigating how the federal government spends taxpayers' money. Its goal is to increase accountability and improve the performance of the federal government. The Government Accountability Office Reports Collection consists of over 13,000 documents on a variety of topics ranging from fiscal issues to international affairs.

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  • January 30, 2009

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  • June 12, 2014, 7:50 p.m.

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United States. Government Accountability Office. Issues Involving the Use of the Futures Markets to Invest in Commodity Indexes, text, January 30, 2009; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc299897/: accessed December 15, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.