Silver and gold critics win CFTC hearing
Silver and gold critics win CFTC hearing
By Gregory Meyer in New York
Copyright The Financial Times Limited 2010
Published: February 24 2010 19:26 | Last updated: February 24 2010 19:26
http://www.ft.com/cms/s/0/a8fed910-2171-11df-830e-00144feab49a.html
When the US commodities regulator sought public input last year on a plan to damp oil speculation, most of the hundreds of missives it received were not about energy, but silver and gold.
One letter read: “I know your time is precious so I will make my request short and sweet. Please limit concentrated short positions in the silver futures market. This will allow the little guy a fighting chance against powerful market manipulators.”
Now the silver and gold bugs have got the regulator’s ear. The Commodity Futures Trading Commission this week announced it would host a public meeting in late March to discuss speculation limits in US metal futures.
This accommodates critics accustomed to brush-offs by Wall Street’s precious metals traders.
Bart Chilton, a CFTC commissioner, says, “I’m not suggesting they have a legitimate argument. I looked at it carefully and I became convinced that it’s something we should investigate.” Previous CFTC inquiries in 2004 and 2008 found neither manipulation nor conspiracy.
The leading silver market gadfly is a newsletter publisher named Ted Butler, whose calls to action have goaded the CFTC for years. In gold, the loudest activist is the Gold Anti-Trust Action Committee (Gata), a group funded in part by small mining companies.
Silver and gold critics suspect that a handful of large banks control a disproportionate “short”, or selling, position in futures. On New York’s precious metal market Comex, 42 per cent of the net short position in silver was held by four or fewer traders, according to CFTC data last week. Mr Butler thinks that share is too high.
“The silver price is artificially depressed,” says 63-year-old Mr Butler, a former commodities broker who was once fined $30,000 by the CFTC for record-keeping violations in a larger orange juice manipulation case.
The gold action committee alleges that a “cartel of gold bullion banks” suppresses the gold price by secretly borrowing the metal from central banks and selling it. Further, Bill Murphy, the group’s chairman, says: “Gata does not believe the US has all the gold the Federal Reserve says it has in its vaults.
“We basically think the gold market has been manipulated for the past decade.”
CFTC staff have received similar complaints for years from gold and silver traders, without finding a smoking gun.
One weekend soon after joining the agency, former director of market oversight Michael Gorham said that his BlackBerry received about 150 e-mails from retail silver investors, including doctors and teachers, all devoted readers of Mr Butler. “They all were saying the same thing,” he says. He investigated. In a 2004 letter to silver investors, he said that the claim of price suppression “fails to provide a coherent motive for manipulation.”
CFTC staff in 2008 again found no evidence that prices were being manipulated. “People just religiously believe these things,” says Mr Gorham, now a business professor in Chicago. “Reason is not necessarily going to make them change.”
Silver and gold prices have both doubled in the past five years, whereas the Standard & Poor’s 500 stock index has fallen. Gold in December hit a record high above $1,200 a troy ounce and remains not far from that peak.
Yet Mr Murphy thinks that is a bargain. If gold paced inflation it would be $2,300 an ounce, he says.
To substantiate their claims, these advocates piece together data from disparate government sources. CFTC data show that large commercial traders do hold large net short positions in silver and gold futures. But Wall Street traders say that while banks may be short on Comex, the US futures market is a small window on a global metals market centred in London. They say that most of the time their Comex short trades hedge similar “long”, or buying positions in the UK.
But while the CFTC provides information on positions in New York, the UK regulators do not disclose similar information for London’s over-the-counter precious metal market, so this argument is unlikely to mollify critics.
By Gregory Meyer in New York
Copyright The Financial Times Limited 2010
Published: February 24 2010 19:26 | Last updated: February 24 2010 19:26
http://www.ft.com/cms/s/0/a8fed910-2171-11df-830e-00144feab49a.html
When the US commodities regulator sought public input last year on a plan to damp oil speculation, most of the hundreds of missives it received were not about energy, but silver and gold.
One letter read: “I know your time is precious so I will make my request short and sweet. Please limit concentrated short positions in the silver futures market. This will allow the little guy a fighting chance against powerful market manipulators.”
Now the silver and gold bugs have got the regulator’s ear. The Commodity Futures Trading Commission this week announced it would host a public meeting in late March to discuss speculation limits in US metal futures.
This accommodates critics accustomed to brush-offs by Wall Street’s precious metals traders.
Bart Chilton, a CFTC commissioner, says, “I’m not suggesting they have a legitimate argument. I looked at it carefully and I became convinced that it’s something we should investigate.” Previous CFTC inquiries in 2004 and 2008 found neither manipulation nor conspiracy.
The leading silver market gadfly is a newsletter publisher named Ted Butler, whose calls to action have goaded the CFTC for years. In gold, the loudest activist is the Gold Anti-Trust Action Committee (Gata), a group funded in part by small mining companies.
Silver and gold critics suspect that a handful of large banks control a disproportionate “short”, or selling, position in futures. On New York’s precious metal market Comex, 42 per cent of the net short position in silver was held by four or fewer traders, according to CFTC data last week. Mr Butler thinks that share is too high.
“The silver price is artificially depressed,” says 63-year-old Mr Butler, a former commodities broker who was once fined $30,000 by the CFTC for record-keeping violations in a larger orange juice manipulation case.
The gold action committee alleges that a “cartel of gold bullion banks” suppresses the gold price by secretly borrowing the metal from central banks and selling it. Further, Bill Murphy, the group’s chairman, says: “Gata does not believe the US has all the gold the Federal Reserve says it has in its vaults.
“We basically think the gold market has been manipulated for the past decade.”
CFTC staff have received similar complaints for years from gold and silver traders, without finding a smoking gun.
One weekend soon after joining the agency, former director of market oversight Michael Gorham said that his BlackBerry received about 150 e-mails from retail silver investors, including doctors and teachers, all devoted readers of Mr Butler. “They all were saying the same thing,” he says. He investigated. In a 2004 letter to silver investors, he said that the claim of price suppression “fails to provide a coherent motive for manipulation.”
CFTC staff in 2008 again found no evidence that prices were being manipulated. “People just religiously believe these things,” says Mr Gorham, now a business professor in Chicago. “Reason is not necessarily going to make them change.”
Silver and gold prices have both doubled in the past five years, whereas the Standard & Poor’s 500 stock index has fallen. Gold in December hit a record high above $1,200 a troy ounce and remains not far from that peak.
Yet Mr Murphy thinks that is a bargain. If gold paced inflation it would be $2,300 an ounce, he says.
To substantiate their claims, these advocates piece together data from disparate government sources. CFTC data show that large commercial traders do hold large net short positions in silver and gold futures. But Wall Street traders say that while banks may be short on Comex, the US futures market is a small window on a global metals market centred in London. They say that most of the time their Comex short trades hedge similar “long”, or buying positions in the UK.
But while the CFTC provides information on positions in New York, the UK regulators do not disclose similar information for London’s over-the-counter precious metal market, so this argument is unlikely to mollify critics.
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