NEW YORK (TheStreet) -- If anyone needed proof of the power of speculative bets in commodity markets, the last three days of silver's price decline settles all doubts.
Silver's drop of almost $12, or 25%, in less than 72 hours is a direct result of chasing away the weakest retail customers and traders from this "poor man's gold." The avalanche of positions unwinding was initiated by increased margins assigned to silver futures by the Chicago Mercantile Exchange in the past week.
But now we've got to ask the question: What could similar measures for oil futures do for us regular Joes paying through the nose at the gas pumps?
The answer is, probably as much as a dollar a gallon, although it won't be quite as easy as raising margins in futures -- speculative oil money isn't as easily attacked as silver.Let's imagine that the price of silver, or oil for that matter, is represented in layers of money. There is hedging money from producers and commercial end-users, representing the "real" fundamental participants who have set prices for commodities since futures markets were created. On top of that, we have a layer of speculative interest from bigger institutional investors and traders, from pension plans and university endowments and dedicated commodity hedge funds. Add to that a layer from smaller trade groups and funds that only dabble in commodities -- a smaller amount of interest individually, but collectively their force can be as great. Finally, let's add that last layer of purely speculative interest, from day traders and other retail investors working through commodity ETFs. What you have, if I can push this analogy, is a seven-layer cake of capital, all voting on the price of the underlying commodity. Sometimes, it may be tough to see just how thick each layer is, but there is no question that increased money in any layer will lead to a thicker cake and a higher price.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV