Dow Jones-AIG Commodity Index Introduction A commodity index should fairly represent the importance of a diversified group of commodities to the world economy. Liquidity, or the relative amount of trading activity centered on a particular commodity, is an important indicator of the value placed on that commodity by financial and physical market participants.
Liquidity provides a window on the commercial significance of a commodity.
Production data alone also may underestimate the investment value that financial market participants place on certain commodities. Gold clearly illustrates the potential shortcomings of exclusive reliance on production data and the greater balance provided by reliance on liquidity data. Since time immemorial, gold has played a unique role in the world economy, which is not effectively aptured by current production data. For example, although only 2,400 metric tons of gold were produced in 1998, approximately 34,000 metric tons were held as official government reserves. Primary reliance on liquidity data as a weighting measure reduces this type of potential distortion.