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Another gold analyst strives to miss the point

Section: Daily Dispatches

10:15p ET Tuesday, March 9, 2010

Dear Friend of GATA and Gold (and Silver):

GATA's clamoring with the U.S. Commodity Futures Trading Commission over position limits in the gold and silver futures markets is gaining notice, most recently from gold market analyst Martin Murenbeeld, whose comments come in the March 5 edition of the Gold Monitor letter of Dundee Wealth Economics, for which Murenbeeld is chief economist ( But like some other gold market analysts, Murenbeeld seems to be striving to miss the point. He writes:

"The original intent of the CFTC's review of position limits in commodity markets was to 'dampen' oil speculation (which is a politically sensitive issue, but with little hard evidence support it). The Financial Times reports (February 24) [ that most of the complaints from small speculators, however, actually deal with trading in silver and gold. GATA is around the periphery of these complaints, I suspect, as the general feeling seems to be that 'a handful of large banks control a disproportionate short position in futures.'

"But of course they do! (I would change the word 'control' to 'hold,' however.) 'Non-commercials' (the specs) hold a large net-long position on Comex (a chart of which we often feature here). ... Since all positions cancel out to zero, a large net-long position by 'noncommercials' must of necessity be offset by a large net-short position by 'commercials,' which includes the dealers. (Is this therefore another tempest in a teapot?)"

GATA really doesn't need to be instructed that in the futures market there is a long for every short, nor that the commercial and speculative traders often trade against each other. Rather, GATA's complaint is that according to the CFTC's data one or two U.S. banks -- not the "handful" of Murenbeeld's commentary, but just one or two -- seem to collect and manage the vast majority of the commercial short positions. Things might be different if that commercial short position was more or less evenly distributed among, say, five or 10 banks. In that case no bank might have disproportionate influence. But most of the commercial short position has not only been extremely concentrated but also concentrated with the very bank that is openly the primary agent of the U.S. government in the financial markets, JPMorgan Chase & Co.

Apparently Murenbeeld considers this the natural order of things, even though concentration of a long or short position is plainly manipulative and was the justification given for government action against the Hunt Brothers in their supposed silver market corner in the 1970s, just as excessive dominance in any market is the trigger for activation of anti-trust law.

Whenever there's a crisis in the markets, the U.S. Treasury Department or the Federal Reserve intervenes openly through JPMorgan Chase & Co. Given the extensive official documentation compiled by GATA about the U.S. government's interest in suppressing the price of gold as part of a general scheme of control of the currency, bond, and commodity markets (, is it really so weird to get suspicious whenever JPMorgan Chase & Co. turns up in a market in such a big way?

Blanchard & Co.'s federal anti-trust lawsuit against Barrick Gold and its bullion bank (yes, JPMorgan Chase & Co.) was based on Barrick's excessive dominance in gold short positions in futures markets. Blanchard argued that Barrick, using JPMorgan Chase & Co. as agent, had gotten access to so much borrowed central bank gold that Barrick was able to use its gold hedging program to run the gold price up or down at will -- that Barrick essentially had become the gold futures market. Indeed, in defending itself against Blanchard's lawsuit, Barrick actually claimed to be the agent of the central banks in the gold market and argued that the company should share their immunity against lawsuit (

U.S. District Judge Helen Berrigan rejected Barrick's claim, and soon after that, in November 2005, Barrick settled Blanchard's lawsuit. While the settlement was sealed, Barrick simultaneously announced that it would stop hedging gold, so that appeared to be the settlement. Here is a chart showing what happened with the gold price since Barrick stopped hedging, a steady rise leading to a doubling today:

Of course chronology is not necessarily consequence, but with some people it can prompt a little more curiosity than Murenbeeld has displayed. In any case Blanchard's lawsuit against Barrick put market dominance under suspicion long before GATA raised it with the CFTC, and preventing market dominance -- preserving markets -- is the CFTC's job.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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