Letter to the CFTC The Honorable
James E. Newsome Dear Chairman Newsome: I am writing to you to ask your help with a matter that troubles me deeply. Statistics released weekly by your agency appear to confirm an ongoing manipulation in the Commodity Exchange, Inc. (COMEX) silver contract. Your weekly Commitments of Traders Report (COT), indicates a concentration in net short positions by 4 or less traders, that defies economic justification. In your most recent report, dated February 8, 2002, for positions as of February 5, 2002, the COT indicated that 4 or less traders held a net short position of 32,677 futures contracts or the equivalent of 163,385,000 ounces of silver. And this happened to be the smallest net short position held by these same 4 or less traders for the preceding month. Amazingly, 163 million ounces is more than all the known and verified silver bullion in the world. It is much more than any country can produce in a year. It does not appear possible for this concentrated short position to be a legitimate hedge at the current depressed price of silver. In fact, it appears to be the very reason silver price is depressed. I know your agency keeps concentration ratios for the express purpose of insuring that excessive speculation does not distort the price of any commodity you regulate. I don't know how more concentrated and excessive a short position could be than the current configuration on the COMEX. I did write to the management of the COMEX on October 8, 2001, about this issue. Their response, of October 21, 2001, was that they had conferred with your agency, and that your agency saw no problem. (Please see http://www.butlerresearch.com/archive_free.html However, neither the CFTC, nor the COMEX, have publicly explained why this concentrated short position is economically bona fide, as no other commodity contract has, or has ever had, such a mismatch between a concentrated short position and world production or inventory. This concentrated short position is at the heart of a long term silver price manipulation, that I ask you to review. For the purpose of fixing this serious threat to the workings of our free markets, please allow me to offer a very simple solution to the problem. Direct the COMEX to institute reasonable speculative position limits in their silver contract, as is clearly intended by the Commodity Exchange Act (CEAct). Currently, the COMEX does not have a speculative position limit, except in the delivery month. Instead, they employ an "accountability limit" of 7500 contracts, or 37.5 million ounces. This limit is so large, that it effectively limits nothing. There are very few real producers and consumers in the world who produce or consume more than 37.5 million ounces of silver annually. The COMEX is thereby evading the clear intent of commodity law, by allowing speculators, both short and long, to trade in amounts greater than real producers and consumers deal in. I'm sure you know that the chief purpose of the CEAct is to insure that the real producers and consumers set the price of any commodity, not speculators. By allowing speculators, or commercials who are openly speculating, to trade in the amounts of silver your COT indicates, speculators appear to be violating the key purpose of law. If the CFTC would insist upon a real speculative position limit in COMEX silver of 1000 contracts, or 5 million ounces of silver, no one would be able to manipulate the price of silver via the COMEX. Of course, bona fide hedgers would be able to exceed this speculative position limit by means of a hedge exemption, as spelled out clearly in the CEAct, i.e., up to 12 months production or consumption, or equal to inventories or legitimate purchase orders. This speculative position limit must apply to both short position holders and long position holders. I thank you in advance, for your attention to this matter. I'd appreciate hearing your thoughts. Respectfully yours,
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