We've noted the controversy over exchange traded funds (ETFs) and whether they are becoming too powerful in certain commodities markets. The SPDR Gold ETF is certainly the prime mover in the gold market these days. The concern is that as demand for commodity ETFs rises, it forces the trustee to buy more physical stock, which, of course, pushes the price higher. The fear is twofold: that ETFs may have trouble buying physical product to satisfy their contractual obligations and that the rise of these funds is fueling a bubble.

That fear was stoked again when news hit that JPMorgan (NYSE: JPM) went on a massive buying spree in the copper market. The bank bought $1.5 billion worth of copper in a substantial trade characterized by the LME as "between 50 percent and 80 percent" of the 350,000 tons in reserves, the Telegraph reports. The spot price soared to its highest level since October 2008.

The massive purchase follows a letter written by metal traders to the British Financial Services Authority (FSA) arguing that licensing these ETFs funds, which are expected to be launched by several companies including BlackRock and Goldman Sachs, may amount to "approving the next financial bubble."

JPMorgan's aggressiveness in the commodities market may surprise some, given several recent missteps. Recall that back in April, a JPMorgan commodities trader named Chan Bhima lost $130 million due to ill-timed wagers on European coal prices. A massive surge in prices went against the trader, and the effect was devastating. It really rocked the coal market. Bhima was later let go. But then again, JPMorgan has plans to launch a copper ETF soon.   

For more:
- here's The Telegraph article

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