No Words from the CFTC About the Regulatory Elephant in the Commodities Room

Includes: CEF, DBA, SLV, WPM
by: Castrese Tipaldi

Here is a regulatory development update. Yesterday, the Commodity Futures Trading Commission issued a statement that it was pulling the exemption from position limits from two entities trading wheat, corn and soybean futures. The exemptions were previously granted back in 2006, via “no-action” letters.

One of the entities denied a continuing exemption was DB Commodity Services LLC, the trading arm for the Deutsche Bank-sponsored DBA agricultural commodity ETF. The fund will now have to reduce its positions in those markets to no more than the Federally-mandated maximum speculative position limits. Thus, the CFTC appears on its way to fulfilling what it had said it was going to do in official statements and during the recent public hearings on position limits. Talking the talk has now become walking the walk.

Bravo to Chairman Gary Gensler, who had this to say in the announcement:

"I believe that position limits should be consistently applied and vigorously enforced,” CFTC Chairman Gary Gensler said. “Position limits promote market integrity by guarding against concentrated positions.”

I believe Chairman Gensler “gets it” when it comes to this issue. I believe he will do what he says he will do about position limits. If he will take on Deutsche Bank, a financial powerhouse and no pushover, I believe he will let no one stand above the law. All that remains to be seen is if he will apply the principles he articulates to the short side of the silver market. I hope and believe that he will.

I think that Mr. Butler is overly optimistic about that outcome. Until now the new CFTC Chairman has still to emit a breath about the elephant in the room, the blatant manipulation occurring in commodities trading, the real and clear crime, i.e. the incredible concentration of short contracts in the silver future market, where just two banks hold almost 80% of all the short positions, where not more than 3-4 banks have the permission to sell (naked) silver that match the whole annual world supply (it’s happened!).

Until now all the noise from him has targeted political sensitive energy and food commodities, with the emphasis exclusively on the long side of the question. So it looks more like an attempt for an indirect and innovative price control than a real will to level the playing field for the commodities futures market.

Therefore I’m not holding my breath: I’ll believe it when I’ll see it!

If I’ll be proved wrong, that will the most bullish event possible for the silver price.

Disclosure: Long silver bullions and SLV. Long CEF and SLW in my model portfolio