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Abstract
It is commonly asserted that speculative buying by index funds in commodity futures and
over–the–counter derivatives markets created a ‘‘bubble’’ in commodity prices, with the result
that prices, and crude oil prices, in particular, far exceeded fundamental values at the peak.
The purpose of this paper is to show that the bubble argument simply does not withstand close
scrutiny. Four main points are explored. First, the arguments of bubble proponents are
conceptually flawed and reflect fundamental and basic misunderstandings of how commodity
futures markets actually work. Second, a number of facts about the situation in commodity
markets are inconsistent with the existence of a substantial bubble in commodity prices.
Third, available statistical evidence does not indicate that positions for any group in commodity
futures markets, including long–only index funds, consistently lead futures price
changes. Fourth, there is a historical pattern of attacks upon speculation during periods of
extreme market volatility.