The impact of speculation on precious metals futures markets

Existing research finds little evidence that speculative activity in futures markets has any impact on precious metals׳ spot prices. We examine whether speculators׳ positions predict returns and return volatility in precious metals futures markets. We use two proxies for speculative activity: non-commercial traders and money managers. Money managers are a subcategory of non-commercial traders that is associated with professional speculators. Our analysis distinguishes between short- and long-term dynamics. Whereas we cannot confirm any short-term impact of speculators on returns and conditional volatility in the period after 2006, the weekly changes in non-commercial traders׳ positions appear to have a destabilizing impact on subsequent conditional volatility in gold, silver, and palladium futures markets in the period prior to June 2006. Moreover, we cannot rule out a long-term, potentially destabilizing, impact on returns when accumulated positions of speculators over monthly horizons are considered.