Updated from 1:24 p.m. EDT

This week saw the nastiest one-day selloff in metals in more than a decade, causing some bulls to conclude that a golden buying opportunity had arrived in one of the market's hottest districts.

Yet, judging by some estimates of how much speculation has done to inflate the price of many commodities, the pain could get a lot worse.

Trying to determine the role of speculation in commodity prices -- as opposed to fundamental drivers such as physical supply and demand -- may sound impossible.

But Merrill Lynch strategist Richard Bernstein says he has a model that can figure it out. According to his calculation, the speculative premium in commodities stood at 50% at the end of April.

That might mean metals such as gold and copper have a lot farther to fall. After Tuesday's rout, the pain that has befallen commodities since mid-May has now shaven off "only" 22% from the price of gold, 30% from the price of silver and 23% from the price of copper.

Bernstein's research didn't cover the period from late April to mid-May, when gold gained another 11%, silver another 2.7% and copper another 20%. However, it's fairly safe to assume the speculative premium didn't fall much, given the price appreciation.

Bernstein's approach is pretty simple. He says that speculators are much more likely to be trading exchange-listed futures (simple bets on future prices) than to own the underlying commodities, where commercial buyers set demand and supply.

Therefore, the spread in the performance between commodities that have futures and those that do not "might be a way to measure the speculative premium built into commodities above the price set by fundamental demand," Bernstein wrote in a note.

Similarly, one can compare metals that trade in an organized exchange, such as gold, silver and copper, with those that can only be bought in their physical form in the spot market, notes Tony Crescenzi, interest rate strategist at Miller Tabak and a contributor to

RealMoney

,

TheStreet.com's

sister site.

The diverging trend can be illustrated with vanadium, a metallic element used for hardening steel, that can only be bought in the spot market, Crescenzi says. Vanadium was trading near $40 a kilogram by mid-May, roughly unchanged since the start of the 2006.

By comparison, gold had gained close to $200, or 40%, since the start of the year through mid-May. Over the same period, silver had rallied 65%, while copper had more than doubled.

"The divergence between price trends in tradeable commodities and commodities that can only be traded in the spot market clearly shows that there has been a large amount of speculative fervor driving recent price trends," Crescenzi wrote in a note.

Merrill's Bernstein went further, using a basket of listed commodities and comparing it with a basket of non-listed commodities to come up with a 50% speculative premium by the end of April.

That doesn't necessarily mean that the ongoing correction in metals must remove that entire 50% premium.

The premium already stood at 30% at the end of March. The April-May leg of the speculative surge, Bernstein says, was driven by expectations that the

Federal Reserve

would soon pause its campaign to raise interest rates.

In late April, "as we all now know, the Fed strongly hinted at pausing, and the commodity speculative premium did indeed go off the chart

to 50%," Bernstein writes.

"It should be no surprise, therefore, that commodities have recently fallen as

markets have started to discount a higher probability of a Fed tightening," he adds.

Stronger-than-expected inflation figures last month, clearly hawkish signals from Fed Chairman Ben Bernanke and other Fed officials last week, and again news of slightly stronger-than-expected consumer prices on Wednesday have cemented those expectations.

The market is now pricing in 100% odds that the Fed will hike again in June and 50% odds that it will again hike in August, according to Miller Tabak.

As mentionned above, the cost of pricing in those higher rate-hike odds has already shaven off over 20% from the price of gold and copper, and nearly 30% from the price of gold.

One conclusion might be that the correction has gone far enough, since removing 20% of the speculative premium in commodities has sent prices below their April levels, before expectations of a pause in rate hikes surfaced.

But of course, the market may remove the entire 50% premium, if not more.

Speaking on conference call with clients on Tuesday morning, Bernstein said that the recent selloff in commodities and global markets is directly linked to uncertainty over the Fed's intentions.

After the Fed predictably hiked rates in quarter-point increments at every meeting for the past two years, markets and speculators had grown used to that certainty and therefore felt comfortable taking risks, he said.

This certainty is now gone, as was emphasized by the Fed's hints of a pause in June, followed by assurances of a hike. Even now that the market expects a June hike, "the damage may be done," Bernstein says. "The certainty has not returned, and volatility is likely to remain until that certainty is restored."

Besides the Fed, many of the world's central banks are lifting interest rates, and the resulting drain in global liquidity is telling speculators to flee and telling other investors to avoid risk.

Uncertainty over the Fed's intentions might also affect the fundamental story behind the surge in commodities prices over the past few years. Mainly, rapid growth for the likes of China and India has meant surging demand for many commodities whose production remains plagued by undercapacity.

But the market fears that the Fed might lift interest rates too much, resulting in below-par economic growth, or even a recession, in the U.S. By extension, this would also curb global growth and exports from the likes of China and India, whose main customers are none other than U.S. consumers.

Yet, even before global growth does indeed slow down (if it ever does), it's likely that much of the speculative premium will be on shaky ground and at the mercy of more tough talk from central bankers.

Meanwhile, gold and metals bounced back after a three day sell-off on Thursday, prompting some to say the near-term correction was over. Gold for August delivery rose $3.80, or 0.67%, to $570.30 an ounce. Among other metals, silver for July delivery gained 23 cents, or 2.4%, to $9.97 an ounce and copper for July delivery gained 15.2 cents, or 5%, to $3.13 a pound.

Shares of metals miners were also sharply higher, extending earlier gains as Wall Street staged an afternoon rally. The Philadelphia Gold and Silver index was up 4.7%, the Amex Gold Bugs index was up 5.8% and the CBOE Gold index was up 5.4%.

Among the biggest gainers,

Hecla Mining

(HL) - Get Report

was up 7.5%, while both

IamGold

(IAG) - Get Report

and

Meridian Gold

(MDG)

were up 7%.

The newly launched

Market Vectors-Gold Miners

(GDX) - Get Report

exchange-traded fund, which tracks the performance of the

Amex Gold Miners Index

, was up 5.2%.

ETFs tracking the metals themselves were also rising. The

iShares Silver Trust

(SLV) - Get Report

was up 4.7%, and the

StreetTRACKS Gold Trust

(GLD) - Get Report

was up 2%.