News & Analysis
CFTC to Limit Gold and Silver Trading
Speculative energy traders are not the only ones who may face new trading limits by the U.S. Commodity Futures Trading Commission. On Thursday as the CFTC unveiled the proposed new limits for energy products, its chairman, Gary Gensler (pictured left), said the agency intends to move on to looking at metals next. "The commission is interested in hearing from the public as to issues related to the trading of futures and options in the precious metals markets, such as silver and gold, and to consider the appropriateness of position limits in those markets," Gensler said at an open meeting. "I hope to have a public meeting on this separate topic in the beginning of March."... The proposal does not propose limits for metals, but it seeks comments from the public on potentially imposing similar cumulative-type limits in other commodities including metals and agricultural products like coffee and sugar. CFTC Commissioner Bart Chilton said he supports position limits for metals, and he was disappointed the CFTC is not able to propose limits for them at the same time. – Dow Jones News
Dominant Social Theme: Gold is a bubble?
Free-Market Analysis: So it comes down to this. The American CFTC which runs gold and silver trading is concerned about "speculative bubbles" and is determined to get ahead of the curve. It may impose limits on how much metal can be purchased, in aggregate, on any given day or even set up a trading band that cannot be breached day-to-day. Who knows? The concern is generated by the meltdown of stock markets and fiat-money driven investing generally is said to have generated the CFTC's interest in limiting speculation on a variety of commodities. Where the CFTC goes, by the way, others throughout the West, and even Asia, etc., shall likely follow.
From the point of view of the esteemed Ted Butler, whom we have interviewed, it is the concentration of short positions that would be most affected by position limits. He has written the following (October '09):
My suggestion is that, in light of my new gold versus silver position limit calculations today, the Chairman should direct the CME to publicly explain why the all-months-combined position limit in COMEX silver should not be immediately reduced to 1500 contracts. After all, the CME’s own white paper lays out the formula approach and lists the variable inputs; volume, open interest and deliverable supplies. It is my further suggestion that the Chairman call upon Commissioners Dunn and Sommers to offer the same public explanation, in light of their clear support of the CME’s general position. It is an explanation I am sure many would be interested in hearing.
If and when the all-months-combined hard position limit in COMEX silver is reduced to 1500 contracts, the issue of the big concentrated short position will be exposed for the fraud and manipulation that it has been all along. Whether it is one big US bank (JPMorgan) holding 30,000 contracts, or the four largest traders holding 15,500 contracts each on average, a 1500 contract limit will prove just how outrageous and excessive these big silver short positions have been. And if the CME or the dissenting commissioners don’t have the moxie to step forward with a public defense of the 6,000 contract current limit, the chairman should make the big shorts do so themselves. Drag these big shorts out into the sunshine and have them explain why only 4 traders make up the entire commercial silver net short position. Now that would be real transparency.
We agree, perhaps, with Butler's position from a standpoint of practicality, though from a free-market perspective, we would always rather see markets opened up rather than further limited and controlled. Also, we wonder if somehow the limits will end up affecting gold and silver on the up side, while somehow exempting the short-side positions of the very biggest players (JP Morgan, etc.). As silver analyst David Morgan has written, there may be other issues (delivery, private paper trading, etc.) that are of import as well. Certainly within this context (from the point of view of the powers-that-be), gold would seem to be a candidate for price controls – and silver a somewhat lesser one. Gold especially has seen vast price hikes in the past 10 years, from US$250 an ounce to US$1,200 and even more.
We simply don't have that much faith in the CFTC to do anything meaningful for the gold and silver market, given its track record. It has been suggested that the CFTC is so embarrassed at this point about the manipulation that its hand is being forced – and this time it will "do the right thing." This may be so. Nonetheless, many gold bulls especially are very suspicious of the motives of the CTFC which has long been believed – by many smallish investors in the metals community – to be providing regulatory cover for a manipulation of the metals markets by major players that goes back several decades. Indeed, the kind of fiat money system that the West now has in place is prone to unexpected collapses and when these collapses take place, gold and silver retain their value by contrast – and look as if they are gaining considerable value because of paper-money ruination.
In the 1970s, the business cycle turned and gold and silver showed considerable strength. Manipulation of perceptions is most important when one is trying to revive a fiat-paper standard – and from this point of view paper-money standards are no more or less promotional than any of the other memes that the power elite promotes to expand wealth and control. Fiat money almost collapsed recently. This blunt statement however is rarely if ever voiced. The biggest bubble in the world is not in securities, or technology or even over in China – the biggest bubble now is paper money itself, which has been inflated by central bank overprinting to massive proportions.
The over-printing has temporarily disguised the ruinous erosion in value of paper money, especially the dollar, but the trends are ominous and continuous. Every upward tick of gold and silver now (since metals prices have climbed dramatically) is another nail in the coffin of paper-money credibility. The only competitor Western money really has in the foreseeable future is gold and silver -which actually have proven historical value.
Conclusion: The West, especially the Anglo-American power elite, will do almost anything to slow the appeal of gold and silver in the world – and we don't think that's changed. Every price rise erodes the validity of fiat money a little bit more. The elite just got finished "saving" the modern financial system, or so they proclaim. Actually, they were simply able to stave off a total fiat-money meltdown by printing trillions in additional paper currency and demanding that banks circulate the notes. The system is in parlous shape. If gold and silver keep going up – especially at a rapid clip – the manipulations of the power-elite will come under jeopardy once again. We hope the CFTC's efforts will result in what Ted Butler anticipates – a fairer and less manipulated market and the robust prices gold and silver deserve based on market demand. Of course, time will tell what the CFTC's true motives are. (Updated 15, January '10)
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Posted by Mlee on 03/26/10 02:08 PM
CFTC is so weak they will delay ruling while the manipulation will continue
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Posted by Lynn on 01/18/10 12:47 PM
I notice that the CME electronic board is trading all the metals today 01/19/2010, while the stock market is closed. Thus the SLV ETF cannot trade. All the manipulating institutional traders have taken the day off, and the volume isonly abount 25 of normal. Gosh, it's amazing to see the futures markets operate like they were intended when all the scheming JPM short sellers are home.
Reply from The Daily Bell
Hah, interesting observation.
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Posted by KENNY WRIGHT on 01/17/10 07:52 PM
J.P. MORGAN IS SATAN INC. AND SHOULD BE EXORCIZED BACK TO HELL WHERE THEY CAME FROM.
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Posted by Fazsha on 01/16/10 01:49 PM
I don't want the position limits to be set just yet. I haven't accumulated all the physical gold I want to, yet. As long as JP Morgan keeps the price down, I'm buying!
Reply from The Daily Bell
We've gotten several of these responses. Seems like market manipulation cuts both ways!
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Posted by James on 01/16/10 02:49 AM
If manipulation stops, the price of metal will go higher very fast. However, we can profit only once. If manipulation continues, we can continue to profit from the market. Because I think manipulation will fail finally. Their loss will become our profit!
Reply from The Daily Bell
Well, there you go!
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Posted by Snowy on 01/16/10 01:33 AM
In my opinion, short positions should be available only to those that can prove their positions will be physically covered. But if this happened, we evil speculators (tsk, tsk) would go long so hard it would end the game, so the outcome I suggest will never see the light of day.
Therefore, the short positions on the CFTC will not be ended (they will probably be expanded, after all the shorts still have $700 billion to play with), but the large long positions probably will be disallowed, as those evil creatures are driving up the price of barbaric relics....
Reply from The Daily Bell
We have this sneaking suspicion that the CFTC will find a way to make things worse, not better.
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Posted by Dan on 01/15/10 10:58 PM
As you have very clearly stated, the CFTC is part of GOV and GOV is trying to protect paper money. BUT, they also mention, in passing, "agricultural products".
I believe that the CFTC is trying to create a framework for limiting speculation in food commodities. There are several people who believe that we're going into a super-cycle in commodities.
Not many people get worried when gold and silver go way up. If the same happens to food and energy, people will go crazy. Treasury? had to come up with a quick rule a while back to stop short-selling of financials. I believe that GOV wants a mechanism already in place to control speculation in commodities.
I don't expect to see J.P. get their silver fingers burnt but, i wouldn't be surprised to see commodity futures hitting limits.
Ty Andros sees a lot of problems coming ...
Click to view link
I believe that GOV wants control mechanisms in place NOW.
Reply from The Daily Bell
Very good insights. Thanks for the link - really great.
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Posted by Ed Hunter on 01/15/10 06:29 PM
Terrific piece, with a very wise final line. We can hope for the best but should temper expectations, at least until Goldman Tower, JP Morgan, COMEX and the Fed are crawling with SEC and Justice investigators.
Not holding my breath there. But time is against the bad guys. Ted Butler is the real deal, he does a weekly Metals wrap interview with the excellent Eric King.
Go to Click to view link and look for the Gold tab. I'm an early adopter of this site and I highly recommend it for real information. The broadcast archive is a treasure trove. Listen to anything Jim Willie has ever done!
Great interviewer plus fantastically knowledgeable guests = time well spent.I have no business interest, just sayin'. Also see Click to view link, they've had all this spot on for over a decade now. GATA is now suing the Fed for documents relating to their long-term manipulation of the gold and silver market. This is all getting very interesting, no?
Reply from The Daily Bell
We think we've covered much of what you mention in past articles, and have interviewed both Mr. Butler and Mr. Murphy (look on our interview tab). We are aware the lawsuit and of Mr. Butler's position regarding CFTC trading limits. We agree absolutely with your perspective that "this is all getting very interesting." And thanks for the info updates. Anything that buttresses the alternative press and truthful reporting is important. The "bad guys" are being hit over the head by the Internet, which has created increasingly informed viewers and investors such as yourself. It is becoming a big problem for those who have operated arrogantly behind the scenes for too long.
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Posted by Shawn on 01/15/10 05:15 PM
Limiting the amount of contacts to 1,500 overnight would basically be a short trap perpetrated by the CFTC. I very much doubt that the CFTC would set the Feds friends, the big banks, up for such a fall.
If this were to happen, they would give them plenty of time to unwind their position. Maybe that's what is happening with this rhetoric.
Gold will go where the mismanagement of the U.S. economy tells it go. Being a free-market economics proponent and of the conviction that gold and silver being the best store of value during inflationary times, I believe the rush to gold has not started yet, except for the informed few.
I would venture to say most of the people who read The Daily Bell are in this camp. We haven't heard waiters and cab drivers recommending gold and silver yet, so it's not too late to protect yourself with a proven store of value. One thing about a short sale is that it is built in future buying.
Reply from The Daily Bell
Thanks for the insights.
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Posted by James Morgan on 01/15/10 04:38 PM
Here are my comments:
(1) NO price controls on either silver or gold
(2) No naked short positions. All short positions should be backed up by long positions, borrowed stock, or physical metal borrowed or owned.
(3) No limits should be put on long or short positions if comment number 2 enforced.
(4) No short sales except on an uptick in price.
(5) Purchase of gold and silver must not be constrained because of erosion or collapse of the dollar.
Reply from The Daily Bell
Yes, you seem to see a potential delivery issue as a primary one. Thanks.
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Posted by Bowman on 01/15/10 01:27 PM
I hold a high degree of respect for Ted Butler and I hope he is correct, however I, like you have abiding distrust of anyone who tries in whatever method to implement "price controls" on anything within the market place.
History has shown that no good comes from any attempts at manipulation of anything of tangible value. The only good controlling force is the market itself.
Nothing is worth more or less that what it can be sold for when placed for purchase in a market free from artificially imposed indicators. Any imposed limits, regardless of the magnitude always result in effects, that are adverse to the reasons stated for setting the limits.
Reply from The Daily Bell
Well, yes, thanks ... That's just what we were trying to get at, though we have the highest respect for Ted Butler and understand that he is trying to come up with practical solutions for the real world ...
We will also grant that we are philosophically attuned to the idea that private enterprises can do as they please to build and rationalize their business - and imposing trading limits in a private market is a different process than creating government law, which is enforce by force. The trouble with the CFTC is that it is not likely very "private" anymore, but serves more as a mercantilist adjunct to larger manipulations.
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Posted by Ray E. on 01/15/10 01:17 PM
The large short positions in gold and silver are the tip of the iceberg. These positions are funded by the Fed no differently than the same banks are acting as strawmen buying treasuries for the Fed.
If we can ever look under the Fed rock, we will see the same banks acting as straw buyers for the DJIA. Note that over 30 of trading is in bank stocks.Sunlight will kill the Fed rattlesnake.
Unfortunately, this rattlesnake has already killed our magnificent country. Look for new laws to restrict gold and silver trading in every way they can. You might take note that they are now buying gold and silver themselves. The Fed rattlesnake needs to be dealt with the same way any other rattlesnake is dealt with.
Reply from The Daily Bell
You seem to support our point that the CFTC will not ultimately create a fairer or freer market with its planned upcoming trading restrictions. Mr. Butler is fighting the good fight, but we agree that the manipulation of gold and silver is entrenched at a basic level and that it is a manifest priority of the power elite, no less important than the continuance of the fiat money promotion. Thanks for the incisive feedback.
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Posted by Richard Lamb on 01/15/10 11:17 AM
I've been an investor and student of markets for 50 years. It always boils down to a contest between the controllers (Gov't, industry, ect.) and we individual investors.
The managed markets are so dishonest it interdicts success by my type, except by luck. Take the Fed and interest rates. I'm 80 years old amd have totally abandoned Gov't bonds as a source of income.
Multiples of elderly are stuck with 0.25 to negative interest rates. This is immoral. The manipulation of futures markets, instant trading ect. is at the expense of the average suckers. It is immoral and should be prohibited.
Reply from The Daily Bell
Yes, we constantly note the amount of reporting and the swelling regulatory efforts directed at the private sector while the US government itself (in particular) continually and ever-more aggressively (at the behest of the power elite itself) seems to manipulate the broadest possible spectrum of marketplaces.
Twin goals are to support the dollar and equity markets and to cap the price of money metals. Literally trillions have been lost as as a result of these manipulations over the years in our opinion. There are no lawsuits against these mercantilist efforts that we know of.
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Posted by Dave Kress on 01/15/10 09:36 AM
Excellent article. Butler's plan would expose the JPMorgan top 4short positions. It seems CFTC would be wise to take thesilver hit one time, get it behind them, so markets can normalizeover time and perhaps get them some traction on credibility.
Morgan will never expose their short silver position because too much market value on their stock price is at risk and large U.S.banks are more suspect at this point than CFTC itself plus under unrelenting scrutiny by Obama administration for high bonuses a year after near apocalypse.
Many expect CFTC to clean up its act or be forced out of business. CFTC should go ahead and impose new limits as it will give them traction (and soften the blow on Morgan) as a new "industry" standard" is established "normalizing trading" and "avoiding bubbles" thus allowing Morgan a more graceful exit.
We all need to move on as even high net worth investors at Morgan(via CNBC commentary) by their new Wealth management chief yesterday noted her major clients are constantly looking for ways to own and hold real metals going forward in complete juxtaposition to whatHer employer is actually doing on the banks books.
Check this out asit is good meat for a future article.
Reply from The Daily Bell
Well, you certainly seem to be predicting higher metals prices ...
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Posted by Ranger on 01/15/10 09:25 AM
Anyone remember the Hunt brothers? Now that US banks are nationalized in fact none of this should be a surprise. I doubt the imploding US economy will be able to sustain the dollar bubble no matter how much government manipulation there is.
It is only working now because most people are economically ignorant and unable to imagine an alternative. On the other hand the Soviets kept their house of cards upright for 75 years-even though they were bankrupt the entire time!
Reply from The Daily Bell
Time will tell ...
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Posted by Jon Goldman on 01/15/10 07:55 AM
How about an interview with Mr. Butler to discuss the possibility of upside restrictions on metals pricing resulting from futures moptions restrictions.
I read an article by Mr, Butler a couple of months ago where he said that without the huge number of shorts held by Morgan, et al he suspected that silver would be trading upeards of $40 (this is my memory and may not be 100 accurate but, this was the general discussion).
As an active, and long time silver investor, I would love to see silver (and gold) free to the true supply demand and market pricing.
Reply from The Daily Bell
It is our suspisicion that anything passed by the CFTC will tend to limit the upside, no matter what is maintained. Another interview with Mr. Butler is a good idea, especially as these regs draw nearer.
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Posted by Realist on 01/15/10 07:48 AM
Tuesday I e-mailed the entire CFTC commission. Like everyone else says the only one to respond was comissioner Bart Chilton. His response is always positive but one out of five does not a majority make.
I took a little different approach so as not to bore them with the same old, same old they read in every letter. I said in regard to manipulation,"If some in our government believe this is somehow a good thing I think they are overlooking two factors.
First, keeping precious metals at bargain basement prices only encourages more dollars flowing into these markets instead of places more favorable to the economy.
Second, and more important, all the manipulation and secrecy we consumers are exposed to daily only increases our distrust and erodes confidence. Without consumer confidence no recovery of the economy will occur."
I also believe that as the debasement of the dollar continues a black market in gold and silver will emerge along with more bartering. Hold on to your gold a silver no matter how low they force the price!!
Reply from The Daily Bell
Good letter. Thanks.
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Posted by Bill Clark on 01/15/10 07:17 AM
I understand your feedback but does anyone really know who controls or who can manipulate the price of gold or silver. I believe that it is manipulated but I don't trust anyone to tell me who this is and/or how they manipulate it.
I don't trust our government anymore that the next guy. At this point all I can do is buy what I can afford and pray that it will stay close to where it's at or go up. Seems like most are saying it will go up.
I enjoy The Bell and do the best I can to glean whatever information I can from you and others that have the time to be better informed than I am. Thanks for your efforts.
Reply from The Daily Bell
Anyone who tells you short term where a market is headed is making some sort of guess - educated or not. However, in the long-term (because of the West's monetary setup) there are business cycles that fluctuate between fiat money and precious metals. We are in a precious metals bull cycle right now - but how long it will last or how high it will go is anybody's guess. That being said, there are many metals bulls that think gold and silver will go higher yet.
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Posted by Bill Clark on 01/15/10 06:27 AM
I too am just an average "Bill'. I read all of this but don't really understand most of what it means. My wife and I buy some gold but mostly sliver. We do it locally at a coin store. I walk in, I buy it and I walk out. I have it in my hands, it's mine! Whatever happens with all the rules and regulations I can't control. Seems easy to me!
Reply from The Daily Bell
Well, there is a question as to whom controls the pricing of precious metals, and it is an important one - to you too, if you are buying them ...
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Posted by Morgan Type on 01/15/10 05:36 AM
Good discussion. You want a fairly traded market and yet there are so many issues surrounding the fair trading of gold and silver, including delivery and off-exchange trading. It always comes down to more controls not less. Too bad.
Reply from The Daily Bell
Yes, we'd rather see more openness than more control. But maybe that's not practical in this case. Time will tell.
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