DISPUTE OVER CURBS ON METAL FUTURES / THE FINANCIAL TIMES ( RECOMMENDED READING )

Dispute over curbs on metal futures

By Gregory Meyer in New York

Published: March 26 2010 04:35

US commodities regulators on Thursday poured cold water on complaints by gold, silver and copper traders urging limits on banks and investment funds trading in metal futures.

The Commodity Futures Trading Commission hosted a rare public meeting on metals after years of complaints from small investors that banks unfairly depress gold and silver prices.

Long dismissed by the CFTC, the investors were given a boost in January when the commission proposed hard caps on banks and speculators’ positions in energy markets.

But while the US is the global capital of energy and grain futures trading, it plays a supporting role to London in metals markets. This raises the threat that a US futures crackdown would push trading away from those exchanges the CFTC regulates.

“The United States and, more pointedly, the exchanges registered with the commission, are not the market’s epicentre,” said Scott O’Malia, one of five commissioners at the body.

Commissioner Michael Dunn said new limits on futures trading without authority elsewhere “may result in less transparency in our markets.”

The CFTC nonetheless gave witnesses hours to testify on US metal futures, predominantly traded on New York’s Comex exchange.

Bill Murphy, chairman of the Gold Anti-Trust Action Committee, said JPMorgan and HSBC held “large manipulative short positions” in precious metals on the Comex, and said burgeoning bullion demand threatened to lead to a “price explosion”. Gold hit a record of more than $1,200 an ounce in December.

Jeremy Charles, HSBC’s global head of precious metals, acknowledged that the bank held short, or selling, positions in US futures but said it did so to hedge the prices of gold and silver in its London vaults. JPMorgan declined to comment.

The gold and silver investors were joined by others worried metals prices had been pushed too high, or at least distorted. The Copper and Brass Fabricators Council alleged investment funds were the “major driver” behind rising copper prices. Many industry analysts attribute the price levels to industrial demand in Asia.

A high-frequency trader who locates his computers near the servers of CME, the exchange operator that owns Comex, said that concentrated selling positions could destroy the US silver futures market.

Bart Chilton, another commissioner, sympathised with their concerns, saying the CFTC needed to “fast track” limits on metals.

The CFTC released data showing that about half the world’s gold is traded in London, and a third on Comex. Comex absorbs about half the world’s silver volume.

Copyright The Financial Times Limited 2010.