Passive Long only commodity funds...

...being probed by the CFTC.

As I have said, it was only a matter of time (and high and increasing commodity prices) before political pressure was put to bear on the subject. This has happened multiple times historically and generally presages the end game for commodity bubbles.

Commodity Policies Set for Revision


By DIANA B. HENRIQUES
Published: May 31, 2008
The chief regulator of the nation's commodity markets will unveil
early next week a set of policy changes to address public and
political concerns that market malfunctions may be contributing to
rising food and energy prices, according to people who have been
briefed about the agency's plans.

The new regulatory steps will be announced by the Commodity Futures
Trading Commission, which oversees exchanges that play a central role
in establishing worldwide prices for commodities ranging from corn to
crude oil.

The announcement may also shed some light on a commission
investigation into a sharp spike in cotton prices this year, these
people said. They discussed the proposal on the condition that they
not be named, because the agency is still completing its plans.

The agency has been wrestling for more than a year over farm industry
demands that it examine the role that new financial investors are
having in the futures markets, especially those who are investing
through commodity index funds.

As commodity prices have risen over the last several years, these
funds have become an increasingly large player in the commodity
futures markets, rising from a stake of roughly $13 billion in 2003 to
an estimated $250 billion this year.

Unlike traditional commodity investors or balanced hedge funds, these
index funds do not both buy and sell commodity futures — they only
buy, reflecting investors' desire for a stake in a rising market.

That lopsided trading pattern has generated complaints — most recently
at a hearing last week before the Senate Committee on Homeland
Security and Governmental Affairs — that index investors are
artificially driving up commodity prices at the expense of consumers.
One Senate witness even proposed that federally regulated pension
funds, a major source of index fund investments, should be forbidden
from investing in commodities because of their impact on consumer
prices.

The CFTC has already taken steps to gather more market data about the
role of index funds, and it has held off approving several rule
changes that would have given those funds more leeway to invest in
commodity futures contracts. It was considering relaxing its rules for
index traders early last year before the sharp run-up in commodity
prices.