The New CFTC Position Limits

After taking a few days to read up on the new CFTC position limits, I wanted to post my thoughts.  I am specifically expressing my views with regard to how the new rules will affect Comex gold and silver futures. Unfortunately, while the new rules may make it more difficult for the big banks who manipulate gold and silver futures trading - primarily JP Morgan, HSBC, Goldman Sach and a few others - for a short period of time, I believe that there are enough loopholes and gray areas of definition in the language of the rules that will enable the big bank manipulators to continue manipulating unimpeded.  That said, I also believe that, as is always the case over 5,000 years of history, the natural forces of the market - Adam Smith's "invisible hand," if you will - will ultimately overwhelm any and all manipulation.  Gold and silver will eventually find their "natural" level of trading and it will be many multiples higher price than where they trade now.

Without reinventing wheel, I've consolidated two posts from http://www.silverdoctors.com/ which summarize the new rules into the pdf below.  I've slightly edited the original content and I've placed the key points in bold.  I just want to say that the new rules leave A LOT of room for loophole behavior and "exemptions."  I believe that those who are optimistic that this will sharply curtail JP Morgan's illegal manipulation of the silver market are placing entirely too much faith in our Government and in those who are in charge of enforcing the rules and laws already in place. 

Einstein defined "insanity" as doing the same thing over and over and expecting a different result.  To believe that the CFTC will do the right thing with regard to defining "swaps," and "position limits" and in granting "exemptions" is to once again repeat the mistake of placing faith in our Government - and is therefore insane.

Here's Silverdoctors' excellent synthesis of the "fine print" on the new rules:

(click on the "Full Screen" tab to see big beautiful print)

PositionLimits -

Even if Bart Chilton has the right intentions,  I refuse to believe that one man will be able prevent the banks from exploiting the areas of the rule that are open to interpretation and subject to the judgement of those in charge of enforcing the rules.  That notwithstanding. I fully expect the big banks to spend a lot of money challenging these rules in court.  That notwithstanding, just like every other instance in the financial markets legislative history of this country, I fully expect that the big banks will figure out several ways to get around these rules.  After all, I worked for a bank that had figured out a way to get around Glass-Steagall and had already been operating a securities underwriting and trading unit many years before G-S was repealed.  The ability to do so was part of an "exemption."

As I mentioned earlier, ultimately the market will determine the price at which gold and silver should trade.  The ticking time bomb for the paper market manipulators is the accelerating accumulation of, and demand for, the actual physical delivery of gold and silver.  Venezuela is just the latest example of a large gold owner who has decided to stop placing faith in the London and U.S. depositories and is repatriating its gold by moving it back to Venezuela.  As this trend accelerates, the paper manipulators will be squeezed out of business.  And yes we will eventually see massive defaults by entities like the Comex and GLD.

Of course, by that point in time there will likely be much bigger problems to deal with than the collapse of the Comex derivatives markets...

Have great weekend and don't forget:  IT'S TEBOW TIME IN DENVER!!!!