Commodity Market Financialisation: A Closer Look at the Evidence

The past decade has seen a sharp increase in the level and volatility of commodity prices (Graph 1). This has occurred alongside a sharp increase in commodity demand from emerging market economies, but also in parallel with a rapid increase in both commodity derivatives trading and financial investor activity in commodity markets (Domanski and Heath 2007; Dwyer, Gardner and Williams 2011). That is, commodity markets have also become somewhat more like financial markets. This has given rise to considerable interest in the factors driving commodity prices – in particular the extent to which they have reflected ‘fundamental’ determinants of demand and supply versus the growing financialisation of commodity markets.1