Week-in-Review: In Praise of Speculative Investment

by Jeff Yoders on MAY 13, 2016

It was a good week for commodities in general and metals in particular as prices kept increasing and the broad metals rally looked like it has legs. But what if it’s all speculative investment?

Oil nearly hit $47 a barrel, a 6-month high, bringing drillers back online and pushing up commodities in general. The Silver Institute predicted a deficit for the industrial/precious metal this year, the first in 13 years.

So prices are up, the U.S. dollar is down and it’s a good time to be invested in metals. But what if it’s all not real? What if it’s all based on rank speculation! Speculators snapping up all of the metals contracts out there looking to make a quick buck! Driving up prices only to dump their investments later!

That actually wouldn’t be such a bad thing, our own Raul De Frutos reported this week.

“Speculation is the act of trading an asset, with the risk of losing part of all of the capital invested, in the expectation of a substantial gain,” he wrote. “For traders to trigger a price rally there must be a fundamental reason justifying that the risk of loss is more than offset by the possibility of a significant gain; otherwise, there would be very little motivation to speculate. So, in reality, every price movement, especially in commodity markets, is speculative.”

That’s right, people snapping up iron ore futures and other contracts are actually helping the rally and it might not be short-term investing. That oil rally we talked about earlier? Yep, driven mostly by people buying and storing oil. Spot crude prices, time spreads and refining margins all showed signs of weakening since the start of this month before the big gains this week.

So, in short, get out there and speculate. People wouldn’t be doing if they didn’t think the potential gains outweighed the risks of losses.

Source: MetalMiner