You see, for the past few years, individual investors have been taking advantage of rising commodity prices---like gold---by buying commodity-based exchange-traded funds (ETFs) and exchange-traded notes (ETNs) [ETFs vs. ETNs]. Commodity ETFs and ETNs track the performance of various commodity prices. So when you buy a commodity ETF or ETN, you make money when commodity prices go up, and you lose money when commodity prices go down.

The SPDR Gold Trust (NYSE: GLD)---an ETF that actually buys gold and holds it on reserve---has been a favorite of gold investors. It has been so popular, in fact, that the trust now holds more than $32 billion of gold on reserve.

But herein lies the problem. Commodity ETFs are getting so big that they are directly affecting the commodity markets---both the futures markets and the markets for hard commodities. For instance, when investors buy shares of United States Oil Fund LP (NYSE: USO), the fund managers have to go out into the futures market and buy more crude oil contracts, which pushes the price of those contracts higher.

The impact these commodity ETFs have on the futures market has caught the attention of the Commodity Futures Trading Commission (CFTC), and the CFTC is now investigating whether or not it will curb the amount of futures contracts any ETF can hold. Regulators are also looking at potential limits on the amount of gold and other commodities ETFs can hold.

So what does this mean for you?

ETFs may be forced to limit the number of shares they have available. They may even be forced to redeem shares and cut availability even further. Hopefully everyone involved will be able to figure our a solution that will allow us individual investors to maintain access to the commodities market via ETFs, but we'll have to wait and see.


Wade Hansen in an analyst for Learning Markets