Financial executives warned regulators Thursday that restricting the volume of speculative trading in metals futures would drive business overseas. But a trader said metals futures markets can be easily disrupted by big players like banks.
As gold prices have surged, the Commodity Futures Trading Commission began to weigh limits on the amount of trading in gold, silver and copper futures by market players who are solely financial investors.
At a public meeting, the CFTC heard from futures exchanges, banks, traders and industrial companies that use metals.
Even taking up the question is a new twist for an agency with a mostly hands-off approach in recent years toward the financial markets.
The CFTC in January took a first step aimed at reining in oil speculation, proposing new limits on trading in energy futures by Wall Street firms and other market players.
Commissioner Bart Chilton has said he wants caps on speculative trading also extended to the markets for agricultural products and metals — in a comprehensive effort to prevent market manipulation.
Gold, however, lacks the political heat generated by talk of limits on oil speculation as consumers get squeezed at the gas pump and airlines see their fuel bills rocket in an already tough business climate.
Chilton said Thursday that he supports position limits for metals futures contracts "to prevent and deter manipulation." But other commissioners voiced concerns about driving business abroad.
"The potential is that customers will just take their business elsewhere," said Jeremy Charles, global head of precious metals at the London-based bank HSBC Group.
Thomas LaSala, managing director of CME Group Inc., owner of the Comex and the New York Mercantile Exchange, said excessive speculation in metals futures "has not occurred and is not a threat to orderly markets."
Position limits on metals trading imposed by the CFTC "will have one and only one consequence: a loss of business to U.S. companies," LaSala told the panel.
But Mark Epstein, a trader who deals with gold, silver and copper futures, said banks or other big players in silver "can massively disrupt the market very, very quickly" by trading in blocks of contracts worth $5 million or $10 million at a clip.
"If there weren't these big monster gorilla traders out there" in a small market, prices would be more transparent, he said.
The price of gold leapt 24 percent last year, trading above $1,000 an ounce and making experts wonder if it might become the next bubble in the wake of the mortgage and credit crises. Some forecasters see it going to $1,200, $1,500 or beyond, unless the buying frenzy halts.
Gold first reached $1,000 in March 2008, soon after the collapse of investment bank Bear Stearns and mounting anxiety over the stability of the financial system. Last year investors snapped up gold to protect themselves against the falling dollar.
Currencies have been weak investments around the world because of record-low interest rates stemming from the financial crisis.
Gold for April delivery finished at $1,088.80 an ounce on Wednesday. That was actually its lowest price in more than a month, a $14.90 decline from the day before. Gold prices came under pressure after the dollar surged because of the latest debt problems in Europe.
Experts and economists are divided on whether speculative trading in the futures markets in general fans price volatility.
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