Curbing speculation in raw materials including oil, gold and wheat has touched off a battle at the top U.S. commodities regulator with a legal deadline to rein in traders just four days away.

The Commodity Futures Trading Commission is divided over how to meet the requirements of the Dodd-Frank financial overhaul that became law last year. A lack of data on the $583 trillion global over-the-counter derivatives market has complicated the agency's efforts to limit speculation this month, as directed by the law.

Commissioner Scott O'Malia said today fellow commissioners are attempting a "Trojan horse" move that would impose limits without proper debate. Chairman Gary Gensler last month directed the agency's staff to gather data from firms that exceed certain thresholds, while Commissioner Bart Chilton advocated "position points" beyond which the agency might push traders to reduce or freeze their holdings.

"Much of the pressure to immediately implement position limits/'position points' comes from those who advocate the need for price controls," O'Malia, a Republican, said in a statement. "It is not the role of the commission to control prices."

The CFTC today voted 4-1 to propose rules that would limit the number of contracts a single firm can hold. The public has 60 days to critique the caps. O'Malia said he's "very skeptical" about the proposal, though he voted to put it out for comment. No date is for a final vote on the rules.

David Fuller's view Physical commodities and futures were never meant to be investments. Commodity speculators can play a useful role by providing liquidity but if there are too many speculators, including hedge funds and university endowment funds piling into commodity trackers, they become the problem by making normal hedging practices more risky and driving prices higher.

We saw this in 2H 2007 and 1H 2008, and we are seeing it again today. Too many people, understandably concerned about the future purchasing power of their paper money, are flocking to commodity markets in greater numbers. Taken to its extreme and in the law of unintended consequences category, this can be seen as an attempt to corner a market, whether intentionally or unwittingly.

In forecasting higher commodity prices, due initially to supply inelasticity and rising demand, but eventually also fuelled by increasing speculation, Fullermoney has described commodities as one of the big opportunities, which would eventually and inevitably become one of the big problems.

Everyone will have their own views as to the extent of this problem, or whether or not it really is a problem. Nevertheless, how can one-way traffic into commodity investment/speculation not become a problem? Commodity speculation is never the initial problem; it certainly did not cause La Niña and other supply shortage problems, and it is not responsible for rising demand for all commodities. However, even a moderate degree of speculation in a market where supply is already tight can have an inordinately large influence on prices.

The current symptoms that this tipping point has been reached are growing public concern over higher food and energy prices, not least in emerging markets. This increases pressure on central banks to raise interest rates. It also creates political and regulatory pressure to curb commodity speculation.

New highs in markets which have already done well over the last two years reaffirm trends and embolden many investors, but they are also an indication that risks are increasing.