Friday, October 21, 2011

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 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!!!!


  1. Its Miller time in Baltimore.

  2. Jim Rickards - Western Gold Policy Threat to National Security

    Jim Rickards continues:

    “Countries would have gold or lose gold based on how they ran their economic policies and that would be a fair system. But what we have now is a dishonest system where everything is fiat money, money is worth what we say it is, sort of Alice In Wonderland logic with the Red Queen.

    I don’t blame the Chinese for doing what they are doing. I mean they are stripping their mines as fast as they can. They are buying gold secretly so they can minimize the impact. They are buying mines and shipping the gold straight from the refiners to their vaults. None of that comes as a surprise.

    But why do we have such a non-transparent, manipulated, covert system? Why don’t we have something that’s more normal....

  3. October 21st, 2011 by admin golds

    “Market Manipulation, Fraud, Corruption, and the Second Great Depression“

    ‘The Matterhorn Interview’ – October 2011
    In an exclusive interview for Matterhorn Asset Management, Lars Schall discusses with financial journalist Nomi Prins from the United States and fund manager Wesley Legrand from Australia issues related to the precious metal markets, central bank policies, and the parallels between our days and the age of the Great Crash / Great Depression. Unfortunately, “we’ve just haven’t learned.”

    Nomi, why should people pay attention to the precious metal markets?

    Nomi Prins: Right now, in particular as the second Great Depression is in progress, many investors, banks, governments, and regular people look to the precious metal markets, especially gold, in order to have an alternative to the currency markets. What we’ve seen in the last couple of years in the money markets in general has been chaotic, volatile, and screwed up because governments have been creating money through printing it, as well as extending substantial loans to banks, which hit national economies as debt, in order for these banks to navigate their own problems; as the crisis they created and perpetuated wreaks havoc on the rest of the planet. Gold and silver offer a way that lies slightly outside of the chaos that’s occurring in that printed currency market.

  4. I said these limits were useless as soon as I heard it passed and the time frames that were mandated. I will do full follow up with this and try to get Bart on a call.
    Pray for the collapse. Or pray for QE. Its the only 2 choices left. Im amazed silver has held up this much with 6:1 leverage.

  5. Paul Brodsky: The Seeds of Our Destruction Were - And Still Are - Sown in the Bond Markets

    In our interview with Paul, we asked him to explain the reasons for his concern and to detail how he sees a bond market breakdown unfolding. At the heart of the matter is the run-up in overnight systemic repurchase agreements among banks that started in 1994, which goosed the ensuing credit-driven buying orgy in our economy and has left the system much more vulnerable to exogenous shocks as a result:

    All the way through 2006 a monetary aggregate called M-3, which was the only aggregate that included repurchase agreements (which is the process by which banks fund themselves with each other) grew almost 12% a year. It is an enormous amount and that basically tells you that this overnight lending among banks provided the fuel from which all of the term credit, the 30-year mortgages, auto loans, and revolving consumer credit came - which of course has never been paid down from whence it came. So in effect, we knew that the system became highly susceptible to any hiccup.

    So the system is levered at least 20 to 1 and there is effectively 20 times more debt than money with which to repay it. And so that is a long-winded way of setting the table for where we come down in our macro views. Clearly, it has great ramifications, negative ramifications for the currency and given that the dollar is the world’s reserve currency, we think it has significant ramifications for the global monetary system in general.

  6. (John Fox)

    Tebow's game is like PM market mavens...a bit contrarian, upside potential, and when good, shatters the public perception about the current standard (fiat money and the manipulated monetary metric spewed by DC). Unfortunately that shit won't cut it Sunday and I will be long the USD, BAC and Brady Quinn!!

  7. Tebow to the Broncos is like position limits to silver.

    False hope.

    Love your blog. Thanks for your insight!

  8. (Dave)

    re Tebow: LOL

  9. The position limits themselves are not the real issue. It is the backstopping of bullion bank financial risk by the governments and central banks that is the fraud and corruption. Free and unregulated exchanges are capable of establishing position limits in the context of a global competitive marketplace for overall exchange volume.

  10. Algorithms, Bullion and Criminals: The ABC’s of Understanding Gold and Silver


    The data above outlines an algorithmic, naked-shorting, shell-game which has been perpetrated on our Capital Markets in a co-ordinated fashion with the complicity of the CFTC, the U.S. Treasury, The Federal Reserve and quite possibly the S.E.C. as well. The object of this criminal exercise is/was to create a plausible path for bullion banks to reduce their systemic, serial gold and silver short positions while hopefully maintaining some illusion of “free markets”.

    The large, main-line precious metals ETFs [the ones sponsored by the likes of J.P. Morgan, Barclays, HSBC et al] were created for a reason folks. They were developed to serve as “tools” to enable ongoing manipulation of the traditional inflation sanctuary metals – suppressing their prices in the face of MASSIVE, GLOBAL, FIAT CURRENCY DEBASEMENT.

    The shell-game outlined above is VERY REAL, is being conducted by depraved lunatics we call our “leaders” and has severe geo-political and economic implications.

    We better start dealing with this in a more transparent manner or humanity has a date – in the very near future – with Armageddon.
    Got physical gold and/or silver yet?

  11. Labels Count: This Is a Slight Depression, Not Recession

    "Depressions are a complex array of credit flaws, structural rigidity, currency imbalances and a portfolio of temporary government fixes which are usually harmful. We are in a slight depression that probably started with the American housing collapse in 2007 (that was never fixed), extended to a global questioning of banking security and later bailouts in 2008, credit concerns extending to previously sacrosanct sovereign debt and finally an admission today that global coordination and a new regime is essential. We may be approaching the halfway mark in the global depression which could last until the early 2020′s."

  12. Well lets see it took 2 years for them to get this far.I'm hearing that these new position limits are going to take another year to implement.They got to give the Ban$ters more time to cover.Is there any truth to the year rumor.

  13. Pps: To the Banksters and their lobbyists: Go F yourself.