Do speculators stabilize prices of goods, or make them more volatile?

Economics Economics Questions
1

Many in the mainstream media were accusing speculators of bidding up prices for oil and causing $4 per gallon gasoline a few months ago.

The libertarian take on this that I’ve read is that speculators actually serve to stabilize prices because successful speculators buy low and sell high, keeping the prices from getting too low or too high. (And unsuccessful speculators who do the opposite don’t stay in the market long.)

But this seems to be counter to what my eyes tell me. Things such as gold, copper, and oil, which have a lot of speculators buying and selling, have had prices rapidly increase and recently collapse. But goods without a market full of speculators, such as bread, electronics, and clothing, haven’t seen prices change much at all (at least nowhere near as much as the price of oil and gold.)

It seems sensible to me that speculators could drive the price of oil up, at least temporarily. While all speculators sell eventually, more speculators mean more hands trying to hold the same amount of goods, making them scarcer and thus more costly for the people who consume them.

Thoughts?

2

Speculators simply represent another layer of the market information structure. They weigh evidence of supply, demand and production capacity in the future and buy or sell accordingly.

If, for some reason, a great number of speculators are being misled in their calculations, this can lead to price hikes as we’ve experienced with 150$/barrel of oil. Uncontrolled credit expansion that caused far-reaching inflationary bubbles is one of these great misleading factors.

However, as we’ve been witnessing over the last few months, huge price build-ups may collapse rapidly if wrong-headed information is being recognized as such.

Now, what about bread, clothing and TVs? Since these commodities do not have as many speculators and traders evaluating information, they are more prone to shortages or overproduction. Remember, the more people work towards a price, the more accurately it will reflect market realities. That’s the boon of speculation.