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On several occasions
over the past couple of years, thousands of you have taken the time to write
to The Commodity Futures Trading Commission (CFTC) concerning the issue of
position limits in COMEX silver.
Now the CFTC has solicited your opinion again for what will be the
last time. The current open
comment period, through March 28, is the culmination of all the public
hearings and commentary over the past two years. Your comments on silver position
limits make a difference. Private
legal counsel and even sources within the Commission have assured me that
there can be serious consequences for the CFTC should they ignore the will of
the public, when that public opinion is reasonable.
The silver market has
been manipulated by a concentrated short position. You can’t have a manipulation
without a concentrated position.
The only effective way to prevent concentration is by enacting
legitimate speculative position limits.
The key is to set the speculative position limits at the right level;
not too high, so that speculators control the market, not too low as to
restrict trading liquidity.
The proposed position
limit for silver comes out way too high, over 5,000 contracts. It’s too high because it gives
speculators too much dominance over real world producers and consumers. 5,000 contracts is the equivalent of
25 million ounces of silver.
There are only three mining companies in the world who produce more
than 25 million ounces of silver a year.
In addition, there are only a handful of silver consumers in the world
who consume more than 25 million ounces a year. There are hundreds of important miners
and consumers who produce or consume less than 25 million ounces of silver a year. Therefore, it makes no sense to empower
any speculator who comes along with the ability to hold, long or short, more
than the amounts most of the important world producers and consumers make or
use in a year.
The proper level for
position limits in silver is about 1500 contracts or 7.5 million ounces. That amount is still larger than what
the vast majority of the world’s silver producers and consumers make or
use in a year. If you agree,
please make your opinion known to the Commission. It’s crucial that you do.
Here’s my
letter. Use any part of it or
just the last sentence on a copy/paste basis if you wish.
Dear Chairman Gensler and fellow Commissioners:
I urge you to approve
the staff’s proposal on position limits, including limiting exemptions
to bona fide hedgers. I
would ask you, however, to readjust the proposed formula in silver. The current formula would result in a
position limit of over 5,000 contracts for any single speculator, on an
all-months-combined basis. 5,000
contracts is the equivalent of 25 million ounces of silver. This is too high of a threshold in
light of the realities of the world silver market.
There are only three
mining companies in the world who produce more than 25 million ounces of
silver per year and only a similar number of industrial consumers using more
than that amount. Any speculator
holding an amount of silver derivatives greater than what 99% of the
world’s silver producers and consumers make or use in a year would have
inordinate pricing power. The
purpose of speculative position limits is to prevent such a circumstance.
Please institute a 1500
contract (7.5 million ounce) position limit for silver.
Respectfully submitted,
Ted Butler
The instructions for submitting a comment can be
found here http://comments.cftc.gov/PublicComments/CommentForm.aspx?id=965 All that is required is your first and
last name and email address (repeated) and to use the validation code before
submitting your comment. Your email address will not be published, but you
will receive a confirmation that your comment was recorded. If you have
difficulty entering your comment electronically, you can mail it in, but I
just did it and I’m not a computer maven.
Please remember
that your comments and name will be published for the record. Accordingly,
please be professional and limit your comments to position limits, the issue
at hand. Also, please comment only once, but be sure to comment. It is important
that the Commission knows your opinion on this matter. You can view the
public comments on position limits here http://comments.cftc.gov/PublicComments/CommentList.aspx?id=965
Theodore Butler
Butlerresearch.com
This article was released to subscribers on December 17. For
subscription information please go to www.butlerresearch.com
Theodore Butler is an independent Silver Analyst who has been
publishing unique precious metals commentaries on the internet since 1996. He
offers a subscription
service with once or twice weekly commentaries including detailed analysis of
the Commitment of Traders Report, regulatory developments, supply/demand considerations,
and topics of interest to investors in precious metals, with an emphasis on
silver. Always outside the
box. You can subscribe to his
service by clicking here.
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