Goldman Sachs Commodity Index (GSCI)
What it is:
How it works/Example:
S&P acquired the index from Goldman Sachs on February 2, 2007 and renamed it the S&P GSCI.
All of the commodities in the GSCI are physical commodities; no financial commodities are allowed. These commodities include items such as wheat, corn, soybeans, coffee, sugar, cocoa, hogs, cotton, cattle, oil, natural gas, aluminum, copper, lead, nickel, zinc, gold, and silver. The GSCI is weighted according to their global production levels.
The S&P GSCI index committee has five members who are responsible for the methods and calculations in the index. The committee also determines which commodities will be in the index. The index was normalized to a value of 100 on January 2, 1970, in order permit comparisons of commodities prices over time. To ensure continuity, sometimes the index adjusts via a "normalizing constant" when the weights of the underlying commodities change. The value of the GSCI on each business day is therefore equal to the total dollar weight of the GSCI divided by the normalizing constant.
Goldman Sachs began publishing the GSCI in 1991. Futures contracts on the GSCI and options on those futures contracts began trading on the Chicago Mercantile Exchange in July 1992.
Why it matters:
The GSCI is the most widely used index of global commodities futures prices. The production weighting of the index is designed to reflect the relative significance of each of the commodities to the world economy (but considerations are made for preserving the tradability of the index by limiting eligible commodities to those with adequate liquidity).