Scary stuff and more government control

"I believe we're going to do something," Bart Chilton, one of the four CFTC commissioners, said in a recent interview. "I would be extremely surprised if we don't take some action to set hard limits" on energy futures contracts held by speculators, as well as those in metals http://finance.yahoo.com/news/To-ease-price-swings-US-may-apf-2060237892.html?x=0

 

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It doesn't scare me, maybe you like $4/gallon gas, I don't.

 

I was refering to the metal part in the news story.

 

Big shifts due to speculation aren't good for metals either.

 

As far as the oil thing goes I myself bought a 40MPG car this year as I know $4.00 a gallon gas in the near future is a given!!. I have done experiments with driving this car and found I can squeeze the mileage up to 47 by driving slow and steady. Mileage such as this should make the gas cost a little easier to take!.

 

It is actually good news for gold and silver!

The limits will prevent speculators from selling short futures contracts unless they can demonstrate that they have physical metal to deliver. Right now the speculators can short silver [in particular] without limit without demonstrating that they have sold silver that they actually own.

 

Can I get three cheers for more regulation of commodity markets?

So swine like Goldmann Sachs can't unseat commodities anymore. The gov. should never have loosened those rules after decades of stable commodity markets.

Stable markets. = stable pm prices FTW

 

Like the other guy said "Goldman Sachs will be exempt from any regulation"

 

Cloudsweeper is it possible though that more goverment regulation could eventually lead to personal investors being unable to purchase gold and silver? For example Rooselvelts coinage act of 1934 made it so that "normal people" could not purchase gold or silver until 1986 I think it was.

 

That's where the trouble starts. In the case of many commodities, a person has to demonstrate that they actually have the commodity for delivery to short it. If they don't own the commodity, the volume of contracts they are permitted to trade is limited. In the case of silver [and I think gold], a speculator can short an unlimited number of contracts without owning the commodity for delivery. This greatly distorts the price discovery process. The actual number of futures contracts is greatly in excess of the amount of silver in the Comex that is registered for delivery. If you or I wanted to short huge amounts of silver through the futures market, we obviously could not because no bank or broker would extend the credit and take the risk. But if JP Morgan Chase wants to do it, they have no limit under current law. Thankfully, this seems like it might be about to change. This should result in higher silver prices.

 

The CFTC can't do this. Perhaps Congress or the Treasury Dept can.

 

GDJMSP
I have had a concern that maybe the silver futures are selling so low in an attempt to control the price rise. Silver has gone up roughly 200% in the last 5 years from what I find, more than gold or platinum. Your thoughts???

Thanks CLOUDSWEEPER, I will have to research the CFTC as I'm not sure what that is yet!!!!

 

Goldman Sachs Group Inc. (NYSE: GS) representatives are yesterday (Tuesday) defended their commodities trading business on Capitol Hill, where regulators may set limits on speculators in the sector. The Commodity Futures Trading Commission (CFTC) said that the energy trading community may have played a major role in the volatility of energy prices over the last few years, and may need to expand its oversight of the practice. "The American people are tired of excessive speculation and bubble economies caused by Wall Street greed," Senator Bernard Sanders, an independent from Vermont, said at the hearing, according to The New York Times. "They are tired of hedge fund managers and firms like Goldman Sachs making a fortune betting that the subprime mortgage market will continue to get worse or that more companies will go bankrupt."

 

The point is that someone can go into the futures market and purchase contracts to deliver X million ounces of silver at a future date when they don't actually own silver. This has the same impact on the market price of silver as an actual sale and tends to keep the price low. If the party is a big enough player, they can roll-over the contracts or even add to their short position for years at a time without ever covering -- this has actually been going on. At the same time, this party may be profiting by purchasing silver or options on silver or selling the contracts back into the futures market at a profit on price dips. The futures exchange was set up to (1) allow legitimate hedging by buyers and sellers, and (2) to act as a price discovery mechanism. A little speculation is okay because it provides liquidity, but it has grown so large that the original legitimate purposes have been drowned out by speculative volume. If one of the large speculators is forced to default for some reason and doesn't hold physical silver to cover, there is going to be chaos, and the exchange may actually close. The regulators have recently become concerned enough about this possibility to consider placing position limits on sellers who can't demonstrate they own the silver they are offering to sell. This looks like a positive development to me.

 

I understand that but the Gods at Goldman Sachs wont like it much if that happens!

 

So you believe, and I agree, because futures guru's are selling more contracts than they amount of actual silver they own it makes the market seem as if there is more silver present than actually there is? So simple supply and demand says if there "appears" to be a greater supply then the price would naturally drop. Maybe this explains why the ratio between silver and gold price is 1:68 right now when through most of history it has been 1:20. This actually makes sense to me CLOUDSWEEPER. Any further thoughts, or maybe a link explaining the futures problem?

 

Just to be clear - would you leave it as it is today or do you think a change is needed?