The influence of ETFs on the price discovery of gold, silver and oil

Data retrieved from www.​ici.​org, on December 22, 2009.

There are many studies in the area of price discovery in commodity markets. Starting with Garbade and Silber (1983) who examine price discovery in wheat, corn, oats, orange juice, copper, gold and silver commodities. Garbade and Silber (1983) find that the futures commodities market leads the cash commodities market in price discovery. Garbade and Silber (1983) find that 75% of the information for wheat, corn and orange juice is provided by the futures market. In contrast, Quan (1992) does not find that the price formation occur in the futures market. However, Quan examines only crude oil commodity. Schwarz and Szakmary (1994) re-examine and criticize Quan (1992) study and find that the futures market dominates the cash market by looking again in the crude oil commodities market. Schroeder and Goodwin (1991) examine the live hogs market and find that 65% of the price discovery appears in the futures market. Pavabutr and Chaihetphon (2010) study the gold futures contract in India and find that the available futures contracts lead spot prices in gold price discovery.

The CBOT contract is now traded on the NYSE Liffe. In 2008, NYSE Euronext which owns the NYSE Liffe acquired the CBOT’s precious metals business from the CME Group.