Silver Position Limits and Commodity Perceptions
The rise of the metal is no longer a taboo in our age of prosperity. With the lift of the monetary ignorance and position limits, silver will become more accessible to the masses. The big players will see a wave of liquidity rushing into the markets. Once the taboo is lifted, silver prices will be flooded with glamour and excitement. However, the current price of silver should be monitored carefully.
Gold
Gold's price is a function of perceptions, and perceptions of gold are a key part of the current monetary situation. It's worth noting that the largest traders hold a majority of the total net short position in precious metals. Government data, such as the CFTC, often lumps all traders' data into one big number. Nonetheless, this pattern has remained consistent over time.
Markets do not reflect reality. As such, they do not reflect the true value of commodities. Instead, they are a reflection of a distorted perception of money. In the case of gold and silver, for instance, a manipulated price discovery system has distorted the market's performance as a monetary asset. Traders holding unlimited position limits are largely responsible for generating this false perception of money.
The Dodd-Frank Act amended the Commodity Exchange Act and required the commission to set limits on speculation to protect the integrity of the market. The new limits on speculation aim to prevent sudden and unreasonably high price changes. The CFTC has already introduced speculative position limits for 25 physically-set commodity derivative contracts and certain linked instruments.
ICE Cocoa
The new federal limits are higher than existing exchange position limits and may cause exchanges to increase their own limit on spot month positions. The previous federal limits for ICE Cocoa and COMEX Silver were 1,000 contracts. Today, the federal limits are equal to 4,900 contracts and the COMEX has exceeded these limits.
The market price discovery system for silver is not working. The price of silver is being manipulated by traders who have unlimited position limits and wield undue influence. They are feeding off of a broken system of money and credit. The problem is that modern investors do not understand the monetary value of precious metals or the long economic history of the precious metals.
It is vital to protect the futures market from the dangers of speculation. The Dodd-Frank Act has mandated the establishment of position limits in certain commodity markets. These limits are important because they prevent excessive speculation and unreasonable price fluctuations.
COMEX Silver
The COMEX Silver price is tethered to a flawed system of price discovery. The COMEX silver price is determined by the dollar price on many exchanges, including the New York Mercantile Exchange, which is owned by the for-profit CME Group.
The price of silver has declined over the past eight years and has formed a five-year base. This suggests that prices are poised to increase in late 2019 or early 2020. The Federal Reserve does not want to see gold prices go through the roof, as that would be embarrassing and cast doubt on the institution's competence and management. The bank is actively promoting the price of silver by shorting it in the paper silver markets.
The price of silver has fallen to a two-decade low compared to the NASDAQ 100 Index. The NASDAQ 100 Index has also broken its weekly uptrend line, which suggests that it is primed to drop further. Furthermore, the ratio of corporate debt to GDP, as well as margin debt, indicate that the credit cycle has reached its peak and is about to collapse. Nevertheless, a Fed liquidity pump and low interest rates could prolong the levitation of the stock market until November 2020.
The CFTC has recently introduced spot month position limits for sixteen non-legacy core referenced contracts. This move is a major change from the past, when spot month position limits were set by exchanges and platforms. COMEX Silver, for example, previously had a spot month limit of 1,000 contracts. However, spot month position limits are not applicable to ICE Cocoa, COMEX Coffee C, and ICE Silver, which now have exchange-created all-month position limits.
CFTC
The CFTC, or Commodity Futures Trading Commission, limits the amount of commodities traded in the marketplace. While some in the physical market may object to this regulation, the truth is that there are many firms that stand to benefit from it. One such firm is Wal-Mart.
In Bell, the CFTC limited a company's trades in foreign currency futures because it was involved in transactions expressly placed under the CFTC's exclusive jurisdiction. The case also involved a foreign currency spot trade. Although the CFTC had jurisdiction over these trades, Dunn did not recognize the Treasury Amendment bar.
The CFTC is charged with protecting futures markets by protecting them from speculation. This is important for the vibrancy and integrity of the market. The Dodd-Frank Act requires the commission to set position limits for speculative activities. These limits help reduce the burdens associated with excessive speculation and prevent sudden and unreasonable fluctuations in price.
Exemptions
A silver position limit is a way to control the price of silver. By limiting short positions, the CFTC limits the number of COMEX silver contracts an investor can own at one time. Currently, position limits apply only to index funds. However, the CFTC may change this in the future.
The current system of silver price discovery is flawed, allowing a distorted, false view of the monetary value of the metal. Various exchanges, including the COMEX, the New York Mercantile Exchange, and the Chicago Mercantile Exchange, are used to determine silver prices in dollars. These exchanges are operated by for-profit companies, such as the CME Group.
The Commission is now reviewing the purpose of position limits and the markets where they might serve a purpose. The recent rise and subsequent collapse of the silver market may have resulted in the accumulation of large futures positions by a few speculators. These speculators were responsible for the negative consequences associated with the collapse, which could have been prevented if there had been position limits in place.