Gene Arensberg has an
article out on the COMEX price smash where he concludes that:
"in order for the initial 124 tonne sale to have occurred “legally” it would have had to have been 14 traders, all with zero orders open, all acting simultaneously, all acting independently, in their own self-interest, without colluding with each other to “sell-for-effect” or conspiring to foment a price smash.
In actuality, the chances that there were 14 traders who held zero open orders all acting independently, all throwing their full allowable 3,000 contracts into the gold market within a few minutes of each other are infinitesimally small."
Gene notes that hedge members have a bona fide hedger exemption "to sell more than the limit, but not without filing paperwork with the exchange" which means that "whoever blew out the gold market on April 12 is already known to the CFTC (and what documentation they used to back up their trade)."
Now I would have thought that position limits would still apply to the person whom the hedger was executing for. A quick google search brought up this 20 page client update
document from a law firm. Reading through the first few pages I was confronted by stuff like this:
"To qualify as a bona fide hedging transaction under the Final Rule, a transaction or position must (1) represent a substitute for transactions made or to be made or positions taken or to be taken at a later time in a physical marketing channel, (2) be economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise, and (3) either (a) qualify as one of the eight enumerated bona fide hedging transactions under the Final Rule and arise from the potential change in the value of (x) assets a person owns, produces, manufactures, processes or merchandises or anticipates owning, producing, manufacturing, processing or merchandising, (y) liabilities a person owes or anticipates incurring or (z) services a person provides, purchases or anticipates providing or purchasing, or (b) qualify as a “passthrough swap.”"
Eyes glazing over? Same here, so I then proceeded to the scroll/skim through reading method. My lay person summary: plenty of loopholes for someone to do what they want and have the CFTC running around in circles.
Now you know why the CFTC investigation into silver has been going on for years without any result.
As I
said in response to this question: Do you think Bart Chilton of the CFTC is imagining things when he says its happening, or maybe he wants to be loved by the Goldbug crowd?:
"Consider that the CFTC has to deal/manage/politic two types of market participants – producers, who want prices to be high and consumers, who want prices to be low. I have seen the theory that Bart’s role is to play to or appease the consumers, which in the case of PMs means they want high prices. I really don’t know if this is the case or he is just straight up. Either way he is often very careful in what he says, and keep in mind the difference between manipulation and suppression. Bart talks of manipulation, not suppression."
To that I'd add the CFTC has to deal with a complex set of rules and regulations. When regulations get this complex market fairness and transparency is actually harmed, and the only ones who benefit are those big enough to have lawyers able to work out the loopholes.
What the market needs is straightforward commonsense rules that everyone knows in advance, just like Kid Dynamite points out in
this post on cancelling trades. Or just drop the pretence and go free-for-all law of the jungle.
Having interest rates this low doesn't help, as speculators have minimal cost in holding a position for a long time (until it blows up) or taking on large positions. This just adds to the volatility.
Time to give up on the CFTC being able to control this, just like Ted Butler
did.
BTW, Perth Mint once had a new hire in our Treasury department suggest we should trade on COMEX. That got laughed at (and that was before MF Global). We will take our chances in the OTC market, where at least we can pick our counterparties, do due dilligence on them, and trade on our terms.
