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FSA warned commodity-backed ETFs may be the next bubble

Exchange-traded funds that are backed by commodities could be the next financial bubble, metal traders have warned the FSA.

A report in this morning’s Telegraph says several metal traders and experts have written to the regulator claiming ETFs also represent a bad deal for investors.

Banks including JP Morgan, Goldman Sachs and Deutsche Bank are planning physical ETF launches. They differ from their synthetic cousins in that investors’ cash is used to buy actual metals such as gold, copper or silver.

One trader told the Telegraph: “Metals like copper are in intense demand. By buying futures contracts, investors have never impacted the physical cost or supply of copper. But allowing investors to hoard physical supplies is the equivalent of allowing investors to sit on warehouses of wheat while Tesco is short of bread.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. But this cannot be. The FSA and hangers-on have categorically told us that ETFs are a “good thing” because they are cheap and easily traded.
    How can there be a problem in the making so early?
    Does this mean one also has to take account of the fact that they invest into things, either hard or soft.
    Could it be that the main driver of an investment is investment not just cost – or am I just clutching at straws.
    No, back to basics, they’re cheap, so they must be good.
    And anyway they are supported by the FSA (so that they can increase their staff when things go wrong – and that must be a good thing.)

  2. Is the “One trader” taking the p***. I thought that that was the essence of entrepreneurial investment – look for potential shortages, and make the best use of them.
    Of course it is possible that we shoot all current traders, and have the market run by some religious order.
    A significant part of our current problems arise from such sanctimonious duplicity – don’t tell me the Trader wouldn’t take advantage of such a situation given the opportunity.
    anyway, we are always told that the market adjusts to such changes, sooner or later.
    This is real just noise from the media rather that information

  3. I feel a thematic review in the air

  4. It was a awe-inspiring post and it has a significant meaning and thanks for sharing the information.Would love to read your next post too……

    Thanks

    Regards:

    Commodity Market

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