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Originally published Thursday, March 25, 2010 at 9:30 AM

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Executives: Metals trade limits would hurt US

A parade of financial executives warned regulators Thursday that restricting the volume of speculative trading in metals futures would drive business overseas. But two traders said metals futures markets can be easily disrupted by big players like banks.

AP Business Writer

WASHINGTON —

A parade of financial executives warned regulators Thursday that restricting the volume of speculative trading in metals futures would drive business overseas. But two traders said metals futures markets can be easily disrupted by big players like banks.

With gold trading over $1,000 an ounce, the Commodity Futures Trading Commission is weighing possible 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 commissioners 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 wants caps on speculative trading also extended to the markets for agricultural products and metals - in a comprehensive effort to prevent market manipulation.

"It seems to me we have a public responsibility to protect consumers," Chilton said. "We have a motive here, and it's not profit."

But other commissioners voiced concerns about driving business abroad.

There's a risk of that occurring, industry representatives said, and limits on metals futures positions likely won't prevent price spikes anyway.

Experts and economists are divided on whether speculative trading in the futures markets in general fans price volatility.

A shower of warnings from bankers and exchange officials prompted CFTC Chairman Gary Gensler to respond, "It's not regulation for regulation's sake."

"It's not about prices," Gensler said. "It's about making sure that markets are fair and open and orderly."

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."

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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.

"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.

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. "The futures markets are no longer serving their purpose," he said.

Another trader, Harvey Organ, said he was concerned about "having one or two gorillas dictate the price."

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.

Many retail investors come to invest in gold through gold exchange-traded funds. ETFs trade like stocks but mirror other assets such as stock indexes or commodities. Offering the ability to quickly move in and out of markets, they've become one of the most popular ways to invest in gold, as opposed to buying gold bars or coins.

Gold for April delivery finished at $1,092.90 an ounce on Thursday, up $4.10 from the day before. Gold prices have come under pressure in recent days amid a surge in the dollar caused by the latest debt problems in Europe. May-delivery silver rose 10 cents to settle at $16.74 an ounce and May copper rose 3.5 cents to $3.38 a pound.

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