Commodity Scarcity and the GSCI Futures Curve

Abstract

This paper will argue that long-only investments in the commodity futures markets, specifically those represented by the GSCI, are only advisable under a well-defined circumstance. One needs to use a reliable indicator of scarcity before investing in commodities in order to improve the chances of earning positive returns. This indicator also assists a commodity investor in potentially avoiding huge losses that can result from investing in commodities during times of surplus. We will describe this indicator as well as note empirical and theoretical evidence for its use.