The booming commodity funds market has become increasingly attractive to many investors, with hard assets such as oil and gold perhaps offering a safe hedge against the current inflation, as well as the double digit gains in the market that have been fast disappearing from the markets for stocks, bonds and real estate. 

Undeterred by the kind of volatile downdrafts that have sent oil plummeting 4.5 percent very recently, only to settle at $104.48 a barrel, large commodity funds and rich individual investors have sent a burst of cash into this enigmatic market over the last year, tumbling records for new money flowing in.

Small investors are pushing in, as well, using dozens of new retail commodity funds to participate in markets that by one measure have jumped about 20 percent in the last six months and have almost doubled in six years. 

However, this market, despite its sparkle, can offer risks of its own, including some dangerous faults that are impairing the ability of regulators to police marketing fraud and protect all investors. Commodities are also open to attack with to the same worries affecting all of Wall Street, where recently the Dow Jones industrial average plummeted almost 300 points, erasing more than two thirds of the previous steep gains.

In addition, the biggest venture’s and lenders in the commodities fund markets are some of the same giant hedge funds, commercial banks and brokerage houses that have been caught in the stormy weather of the equity, housing and credit markets. 

As in those commodity fund markets, an dry up of credit could force some large investors (especially hedge funds speculating with much of the money being borrowed) to sell off their holdings, this will create price swings that will affect a host of marketplace prices and completely wipe out small investors in just a few minutes of trading.

Right now is a very scary time for commodity fund market regulators. It is not a question of over regulating or even under regulating. It is a question of just being deluged by volume, volatility and a dramatically scary shift toward speculative interests.