But there's a material difference between "attempting, in good faith, to determine what the demand for a commodity will be in the future, and buying based on that" and "attempting to determine what the price of a commodity on the futures market will be and buying based on that".

When people say that a commodity's price is being driven by speculation and gambling, they mean that it has shifted from the former to the latter. This means that the price is disconnected from the actual, physical use of the commodity, and is instead being driven by the inconstant passions of the commodities market itself.

>But there's a material difference between "attempting, in good faith, to determine what the demand for a commodity will be in the future, and buying based on that" and "attempting to determine what the price of a commodity on the futures market will be and buying based on that".

These are indistinguishable. Unless you want to restrict markets to being only between suppliers and consumers, there will always be middlemen attempting to predict the price, and since they need to eat, they will be attempting to profit from changes in price.

Which is fine because suppliers and consumers are many times willing to let others handle the risks of price changes (volatility), hence the market for futures.

Of course there's a difference. It's based on information asymmetry, i.e. the 'greater fool' theory. When the information asymmetry is deliberately created, that's being done in bad faith, and is the sort of thing we call fraud when done on an individual level. It often feels like a great deal of our corporate and financial machinery are designed around diffusing actions that would be criminal, or reprehensible if done person to person, in order to allow them to be done at scale without consequence.

> When the information asymmetry is deliberately created, that's being done in bad faith, and is the sort of thing we call fraud when done on an individual level.

What information asymmetry? The previous comments referred to speculators betting on price movements.

Deliberately creating fraudulent information asymmetry would be altering data in industry reports and publishing false manufacture/consumption data. Which, I assume, is illegal.

What is illegal is financial advising without a license. Which recommending a stock falls under. Altering some one else's report and claiming your rendition is the real one is forgery or something, but writing your own report and making up numbers is totally fine.

By, for example, deliberately delaying delivery while owning a significant segment of the available commodity, such as Goldman Sachs did with aluminum a decade ago. [1], while simultaneously selling derivatives based on the very commodities they were manipulating. To the best of my knowledge, there were no consequences - if anyone knows of a financial penalty or change to law or regulations, please share!

1. https://www.usnews.com/opinion/blogs/economic-intelligence/2...

I agree that there is concern of malfeasance in that scenario, but I was under the impression the context of the discussion was solely around the purchase and sale of contracts for the commodities (i.e. betting on the future price of a commodity), not manipulation of the actual supply and demand.

When the same legal entities are in a position to do both (participate in the futures market and manipulate supply and demand) I do not see how or why you would try to make such a distinction.

It feels like you're trying to say, "this market would work fine if it weren't for those meddling bad actors" as a response to "the problem is the bad actors".

> Unless you want to restrict markets to being only between suppliers and consumers

That is what I would like to do, yes.

That is how they were in the beginning. I recommend reading about the development of markets and futures trading to see what benefits they provide, as they are a component of any developed economy around the world.

I challenge you to write out what scenarios you think reducing market participants will solve. Historically it has 100% so far been highly illiquid markets with huge price spreads, which is terrible for both sellers and buyers.

What you’re suggesting means a farmer selling wheat futures for delivery a year from now needs to be at the market at the same time a bread maker is looking to buy wheat a year from now. That basically doesn’t happen because the bread maker doesn’t need that level of forward looking price stability.

Read up on the onion futures markets; due to a (rather fascinating) historical decision, they are one of the few commodities without speculative futures. As a result, price volatility in the market is massive, with far worse swings compared to the efficient markets where speculators operate.

The price should be disconnected from the actual, physical use. If we have a surplus of a substance now but there is reason to believe that we'll need a lot more of it later then the sensible thing to do is to hoard most of it until it is needed and to start producing more of it. Speculators help do that by driving up the price which is a signal to both producers and consumers.

The market thought that China was going to need a lot of lithium for EVs, so the price went up which incentivized higher production and lower use. That's a good thing because it made it more likely that China would meet their demand. Now the market has better information that China is going to need less lithium than previously thought so the price drops which makes it viable for previously marginal users.

People who say that don’t understand what’s going on. Those futures eventually resolve to delivery so this is the real price that producers are selling and and consumers of commodity buy at.

All of the speculation is entirely based on how the news might impact the physical product.

Oil prices went negative precisely because storage was full and people didn’t want the obligation to take delivery of the oil when nobody was using it.

True. Even the master of value investing, Warren Buffett, sometimes suffers huge losses and write-offs.