The Value of Speculation

Speculators, who are often the target of particular scrutiny in terms of weighing on the prices of commodities such as oil, are found to bear negligible weight on the actual price in comparison to fundamental and ancillary drivers such as monetary policy, geopolitical events, and pure supply and demand often spawning from those other drivers.

Speculators, wherever they are found to influence price directionality, are effectively affording intelligent cautionary signals to producers whose rapacious appetites for profits are tempered in the immediacy for higher gains in a future wherein the utility for the given commodity, as gauged by projected price as a consequence of a climbing demand-to-supply ratio, will be measurably, perhaps desperately greater.

The reader here must first recognize, however, that speculative activity in today’s financial markets is far more artificially-driven and ubiquitous than in previous, more normal times, today compelled by artificially-low rates of interest in historically-safe fixed-income securities, such as United States Treasury bonds whose yields have effectively turned negative.

This, along with declining dollar confidence following from consistently anemic economic growth and the ambivalence delivered from the Federal Reserve, forces investors to become more creative in the ways they pursue yields and beat average returns.

Controlling for these influences, speculators are instrumental in determining the opportunity costs of exhausted resources today, to defer consumption until a later date and potentially for posterity. This serves to effectively meter the consumption of any commodity for uses which are potentially unknown by people who haven't even been born, but nonetheless by people who will ostensibly benefit from the underconsumption to apply the commodity in such fashion which will prove imminently utile.

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