Add another case study to the controversy over speculators and market manipulation.

The Commodity Futures Trading Commission is investigating whether cotton prices were 'artificially inflated' in early March, The Wall Street Journal reported Wednesday (subscription required). The March 4 price spiked from about 70 cents per pound to an intra-day high of $1.09 and closed at 93.1 cents.

In Wednesday morning trading, cotton rose about four-tenths of one cent to 70.070 cents per pound.

The Journal reported that the price spike in early March was unusual and baffled traders because cotton inventories were at their highest level in four decades, towel and fabric demand was weakened by the housing slump, and global supplies were high.

On the other side of argument, one which argues that market forces set the price, some cotton merchants themselves were trading aggressively; a little-used exchange rule suddenly required merchants to unwind sell orders; and financial investors, including pension and hedge funds, started to enter the market, which generated an eight-fold jump February 19-26 in net buying, The Journal reported, citing CFTC data.

Commodity Analysis: Another intriguing commodity and potential bubble case study, and all look forward to the CFTC's report. Among other factors, regulators will investigate whether margin requirements contributed to the sudden, large price jump in March. Moreover, while it's clear more institutions are establishing large positions in commodities as investments, due to the slump in conventional investments (stocks, bonds, real estate), studies examining price manipulation are, so far, inconclusive. Stay tuned.