Commodity prices, financial markets, and development: Effects of the financialisation of commodity markets and necessary policy reforms

Given the far-reaching implications of commodity prices for developing countries an understanding of the factors behind recent commodity price developments is crucial. ÖFSE research shows that besides structural changes in fundamental supply and demand conditions, the increasing presence of financial investors on commodity derivative markets has impacted on price dynamics and the microstructure of these markets. This questions to what extent these markets still fulfill their fundamental roles, i.e. price discovery and price risk management, in particular for smaller commercial traders. Policy reforms are required to reduce excessive speculation and ensure the fundamental roles of commodity derivative markets.