Inflation and Commodity Exchange

Inflation and Commodity Exchange - a thought...

Commodity trading on exchanges is time and again being held responsible for the increase in the inflation in the essential commodities. Recently Silver touched price of Rs 75000 per kg and then came back crashing to Rs 50000 per kg.

It was later found that the lots of speculative trading on the New York Comex was responsible for such a shootup in the silver prices. NY Comex then increased the margin requirement of trading in silver to 84% from 25% and then the prices came down drastically.. this establishes the nexus between the price rise and the speculative trading on the commodity exchanges..

In India on the commodity exchanges all the commodities are being traded and even speculated.. some having marign money requirement of as low as 12 to 15% and thus the prices shoot up because of the speculation..

For example if i can buy a lot of some food grain at 15% margin and one lot on delivery costs 100000 Rs.. i can buy the same for Rs 15000 in a vayada bazaar or the futures market and thus can buy more than 6 lots for the same 100000/- even if i dont need them... and hoping that even 7% increase (weekly rate of inflation in food) in price will shoot up my profitability by 50% on investment.. as i have invested 15000 for a lot of Rs 100000 and 7% increase means i get 22000 on my investment of Rs 15000 and thus i shoot up the prices by holding the stock at such low margins.

Then when the prices rise the persons who actually need the stock will have to buy at higher prices and the stock will finally hit the retail market with much higher prices.. and thus shooting up the inflation.

taking a cue from what the NY Comex did in the case of silver we can increase the margin requirements for the essential comodities and food commodities and thus can deter the unnecessary speculations in the commodities giving rise to the prices.. this will also decrease the unlawful enrichment of hte speculators who are having dmat accounts in different names and are hoarding the commodities at low margin requirement.

lets see if this can help the poor indian who sleeps hungary because cannot buy the food at such high prices.

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