There has been a controversy brewing for several years on the affect of speculation on markets. It started in earnest in the summer of 2008 when crude oil exploded near $150 per barrel and is back with us as crude is back North of $100 and gold and silver are at or near all time highs.
It is a particularly dangerous time as the Commodity Futures Trading Commission (CFTC)is contemplating final rules on commodity position limits.
While much of the focus has been on crude oil this could change as on Monday, silver futures surpassed $41.50 and is currently trading above it (see chart below). That level is significant as it is the high set in January 1980 at the peak of the Hunt Brothers attempt to corner the silver market. The key to that attempt — and nearly all corner and squeeze attempts — as Henry Jarecki explains in our upcoming May metals issue, is their huge presence in the cash market.
This fact is being lost on many so called experts as silver is back at elevated levels and for some that is proof enough of manipulation. There is a furor that somebody needs to do something about high prices. That is always a dangerous place to be because often that something creates more problems than existed in the first place.
In previous articles and in testimony before the CFTC, Jarecki has argued that blaming Futures markets is akin to blaming a thermometer for spikes in the weather.
We will examine this in coming weeks as we expect the controversy to grow but we want to here from you.