Market participants in derivatives market will continue to make wild speculation because their only goal is to make profit, and the more artificial demand they create, the more commodity prices will rise artificially away from the levels justified by the market fundamentals. Hence, the price in the futures market is not based on actual supply and demand figures. The government suspends futures trading in commodities as soon as it suspects that such trading may affect adversely the prices of those commodities to the detriment of one or the other class of society. However, the government regularly fails to find a solution to the price gouging in commodities. But one must look at what actions can be taken in the short run in order to stabilize the economy in the long run. The chequered futures trading in commodities only leads to suspicion among the practitioners, market participants, policy makers, economists and academicians too. Thus, it is necessary to revisit whether the algorithmic trading in futures contracts is seriously affecting the underlying spot contracts whereby the futures prices cause the underlying spot prices in Indian commodities market, by using Panel Cointegration and Error Correction Models.

A major spike in commodity prices in the emerging economies has created an agitation among the producers and consumers. The inadequate measures to control the price billows in the commodities is also blind to the plight of the poorest people and the long-term health of the economy. Speculation in trading commodities futures contract is driving the price in the spot market based on the future belief of limited supplies. In addition, because of the financialization of commodity markets, i.e., the increasing popularity of commodity investment funds in the form of derivative contracts due to over leverage, the investors tend to drive the commodity prices. Market participants in derivatives market will continue to make wild speculation because their only goal is to make profit, and the more artificial demand they create, the more commodity prices will rise artificially away from the levels justified by the market fundamentals. Hence, the price in the futures market is not based on actual supply and demand figures. The government suspends futures trading in commodities as soon as it suspects that such trading may affect adversely the prices of those commodities to the detriment of one or the other class of society. But one must look at what actions can be taken in the short run in order to stabilize the economy in the long run.

Financial Risk Management Journal, Kuala Lumpur Commodity Exchange (KLCE), New York Mercantile Exchange (NYMEX), Price Gouging, Traditionally, Futures, Commodity Indices, India.