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Traders Prepare For CFTC Position Limits

With the impending CFTC meeting on Thursday January 13th 2011 taking center stage, investor's with an interest in the commodities markets, specifically those with a vested interest in the physical silver market, will most likely be glued to their monitors as the hearing is streamed online from the CFTC's website.

I have copied a portion of  some discourse on this topic by Doug Hornig of Casey Research.

Doug Hornig:

"If, as seems highly likely, hard position limits come to commodities futures trading, what are the implications for us as investors?

Of course, we’re opposed on general principles to further marketplace meddling on the part of government. And we recognize that this could be just another clampdown on free trade, one that sets the stage for price controls in the future, if not a complete governmental takeover of commodities markets (on national security grounds, of course), along with the possibility of outlawing private ownership of gold á la 1933.

Ominous, indeed. Yet in the short run, these changes may well prove to be to our benefit. There will be an increase in transparency, at least hopefully. Market transparency is good. We should be able to make better decisions if we can see what other players are doing in the areas we’re investing in.

That should also help demystify commodities markets, especially precious metals, for average investors, and draw them in. The more people participate in our favorite markets, the better for our own investments.

Then there’s the matter of those short positions. If GATA and other critics are right, the bullion banks have built themselves a house of cards that depends on being able to manipulate the market without restriction. Put on limits and the house comes tumbling down. The banks could be forced to unwind positions at whatever price they can get. And that means an appreciation in gold and silver that could be jet-fueled.

No matter what, a change this fundamental is bound to have repercussions of some sort. Stay tuned. It’s gonna be an interesting year."

Silver investors have been mostly calm during last weeks vicious correction, numb to the constant volatility they are holding strong. Some precious metals analysts like Dave Johnson are even calling for higher prices this month, without taking into account the situation at the CFTC.

"More and more silver demand is coming from countries like China and India for industrial and jewellery needs. While industrial use of silver is soaring in China and India, rising price of gold jewellery is forcing people in these countries to opt for silver jewellery,” says Johnson.

Wise investor's have been positioning for the inevitable outcome (short covering) that will occur if hard position limits are enacted, and most importantly enforced.

Yesterday Eric Sprott shared his comments on the physical silver market in a PR Newswire:

"Frankly, we are concerned about the illiquidity in the physical silver market," said Eric Sprott, Chief Investment Officer of Sprott Asset Management. "We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver." 

Disclosure: I am long SLV, SIVR, PHYS.