Metal-Trading Limits Weighed by U.S. Regulator


"CFTC likens current regulations to 'speed limits on a dark highway'—ineffective."

U.S. regulators are considering limits on how much of the market for metals including gold and copper that speculators can control after last year’s financial crisis spurred record swings in futures prices.

The U.S. should be on the "fast track" to expand regulation because "excessive speculation" by hedge funds and other large traders are "contorting" the market, Bart Chilton, one of five members of the U.S. Commodity Futures Trading Commission, said today during a public meeting in Washington.

The agency, which oversees more than $5 trillion in daily trading, in January proposed adding limits to the energy markets as part of a government campaign to prevent individuals or companies from gaining too much control of a commodity market. Investors including Michael Pento at Delta Global Advisors have said increased regulation will sap liquidity.

Position limits "will force speculators to exit these markets, thereby reducing their dominance and eliminating the possibility of speculative price bubbles," said Michael Masters, the founder of Masters Capital Management. He is scheduled to speak at today’s commission meeting.

Fluctuations in commodity prices have fueled debate on whether speculators contribute to excess volatility. Copper futures in New York more than doubled in 2009, the biggest annual gain ever, after plunging a record 54% the previous year. Masters estimated last year that a speculative run-up in commodity prices in 2008 led to more than $110 billion in excess food and energy costs for U.S. consumers.

Agency commissioners expressed concern that more rules might make trading less transparent if investors moved to offshore exchanges or less-regulated over-the-counter markets.

"The U.S., and more pointedly, the exchanges registered with the commission, are not the market's epicenter," agency Commissioner Scott O'Malia said. Any regulatory changes “must take into account the global nature of these markets."

Likening current regulations to "speed limits on a dark highway," Chilton said the rules are ineffective.

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