Note to regulators exposes Barclays duplicity on commodities speculation

With heads beginning to roll in the Libor interest rate-fixing scandal, Barclays have now been caught telling regulators one thing and investors another – over commodities speculation which has left many of the world’s poorest people starving.

In a letter of 28 March to US financial regulators, Barclays global head of commodities talked down the impact of their activity on prices for food, metals and energy:

Although we understand that [the Commodities Futures Trading Commission] is under pressure to respond to the perception that “speculation” is responsible for rising commodity prices … We believe that the changes we and others have proposed will mitigate this risk.

So why have they been telling their clients that commodities securities and speculative index swaps have been a, erm, “big driver” of a rising prices? In a bid to encourage investors to pile into the commodities, Barclays were telling potential clients earlier this year:

“commodity investors have begun allocating to commodities again after beginning 2012 heavily underexposed to the sector”

Under pressure from poverty campaigners, Bob Diamond told the Barclays AGM that their traders were not involved in direct speculation. So why on earth are £2.5 billion pounds of commodities on his balance sheet?

Indeed, Barclays own research shows that external asset management is the most popular way to invest in commodities — which is precisely what they are doing on behalf of their clients, trousering a proportion of the profits along the way.

So perhaps Bob Diamond can explain who Barclays are misleading over commodities trading — investors or the regulators?

13 Comments

  1. You can’t eat gold.

  2. Wow, does Guido really believe that Gold is the only commodity available for speculation?

  3. Laurence says:

    @Guido: You do realise food commodities are tradable, right?

    Oxfam and WDM have been hammering them on this. Gold and other metals might be bigger — but if Barclays didn’t speculate on food commodities then Bob Diamond would have pointed this out when he was challenged at the AGM.

  4. Actual Fact says:

    How’s the drunk driving coming along, Staines?

  5. My point was that the billions in commodities are largely like to be other commodities – Barclays does not have a significant soft commodities franchise.

    You do realise for every buyer there is a seller? Sellers being food producers. Farmers in the developing world who since colonial times have had prices suppressed and are now getting better prices, raising their living standards, educating their children…

    Food prices are rising because of the underlyinh demand equation, not speculation – in particular meat demand from BRIC countries where the middle classes are expanding.

    Speculators can’t shift the long term demand supply curve for an extended period like we have seen in commodities. Commodity prices rise in nominal terms when currencies devalue / inflate. We’re currently seeing a global effort to devalue debtor first world currencies.

  6. Tris says:

    You would have to wonder why it was worth lying bout then, Guido.

  7. Jon W says:

    Barclays doesn’t have a significant proportion of softs? Lol, Paul. Lol.

  8. Cornering a market like cocoa goes wrong as often as it goes right – Google the Hunt brothers.

    Incidentally, my first job in the City was working for Cargill – the world’s biggest commodity brokers.

  9. Rob N says:

    Sadly, millions of poor and smallholder farmers around the world have not benefited from high prices. They lack the means to grow more crops to sell or access to markets to sell them in. They lack bargaining power to get a fair price (they get squeezed by middlemen and traders with more money and better information), and in any case they are often net food buyers themselves.
    http://policy-practice.oxfam.org.uk/publications/living-on-a-spike-how-is-the-2011-food-price-crisis-affecting-poor-people-133997

    Barclays Capital is one of the very biggest commodity derivatives dealers globally, and sells its clients a whole range of commodity index-linked products, including a number that are based specifically on agriculture commodities and on oil, which affects the price of food and just about everything else too.

    Commodities have become an ‘asset class’. There is a large and ever-growing body of evidence showing that speculative fund flows affect both the level of prices and their volatility in a way that is not justified by ‘fundamentals’. In fact there is a running list of over 100 studies showing this link exists: http://www2.weed-online.org/uploads/evidence_on_impact_of_commodity_speculation.pdf

    Even Goldman Sachs has admitted speculation adds a premium of $23 to each barrel of oil!
    http://www.forbes.com/sites/robertlenzner/2012/02/27/speculation-in-crude-oil-adds-23-39-to-the-price-per-barrel/

  10. Interesting that Guido is saying that Barclays was lying to its clients.

  11. Jon W says:

    Just like how metals can go wrong too, eh?

  12. mikems says:

    People like Guido are trying to make heaven on earth – be defending current ruin and corruption – so why all the knockers?

    He used to trade in commodities you know, therefore cannot be wrong, even if his claims are evidently contradictory to known facts.

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