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What is Healthy Speculation in the Market?
According to some respected economists, speculation - the practice of investing in a changing market for the purpose of making profit - is a healthy and rewarding process as long as it gives upward or downward movement to the market. Speculation is a positive force as long as it is contained to the individual or small group investment situation. Where it gets out of hand is when large institutions like hedge funds move in and take inflated long or short positions on key commodities like gold, wheat, rice, or oil. By attempting to control the volume of trade in these resources, the big investment firms intentionally drive up the price to a point where they cash in before dumping. As the price goes up, the consumer pays inflationary prices at the store or jewellers, while the little investor is shut out of the market because of intolerable volatility. Bad speculation, as opposed to the healthy variety, also has a justifiable reason for existing. Large financial concerns only invest where an open-market system allows them to do so with impunity. In the latest bull market in oil, the speculators are only protecting their American denominated securities by playing a rising oil market against a falling greenback. A lot of the blame for the present fear and loathing in the commodities market belongs to the US government for allowing the dollar slide to the disadvantage of its trading partners.