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How to write to the SEC to seek an explanation about the NYSE bullion fund
12:24a ET Monday, November 22, 2004
Dear Friend of GATA and Gold:
This AP story printed in the Miami Herald
last week uses the natural gas market to
raise the same questions Ted Butler long
has been raising about the failure of
regulation of U.S. commodity markets in
regard to silver, where speculative
position limits have been inadequate or
not enforced. But at least some big
customers in the gas market are complaining
to Congress, a nice contrast with the dead
silence of the mining industry.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Increases In Gas Prices Prompt Complaints
By Brad Foss
Associated Press
Tuesday, November 16, 2004
http://www.miami.com/mld/miamiherald/business/10198057.htm?1c
If the law of supply and demand really drives commodity
prices, then something seems amiss in the natural gas
market.
Natural gas futures are trading on the New York Mercantile
Exchange at prices roughly 50 percent higher than a year
ago, even though government data show that demand has
declined and pre-winter storage levels are well above
historical norms. This is in stark contrast with the oil
market, where prices are higher amid global output
limitations and unexpectedly strong consumption.
The rise in natural gas prices has coincided with a big
increase in trading by hedge funds and other
speculators. And in a letter being sent Wednesday to
lawmakers, an organization representing industrial
users of gas says the market has become vulnerable
to manipulation.
Whatever the cause, homeowners who rely on natural
gas are feeling the pinch: the Energy Department predicts
they will spend on average $1,000 this winter on heating
bills, a 15 percent increase.
So are manufacturers of chemicals, plastics, and resins,
for whom natural gas is both a raw material and an energy
source. They are complaining to Congress about their fuel
costs after a steep rise in prices in September and October.
The jump in natural gas prices has not received as much
media attention as the oil-price run-up, but consumer
advocates and industry groups say it is more troubling from
their perspective. Most natural gas pumped to American
factories and homes is produced domestically and shouldn't
be as vulnerable to the geopolitical turmoil that has roiled
oil markets.
"The natural gas market price is no longer being set by
consumers' demands for the physical supply of gas," Paul
Cicio, the executive director of the Industrial Energy
Consumers of America, said in a letter to be sent
Wednesday to members of Congress. "Instead of the
market serving the greater public good, it serves the
investment interests of ever-growing unregulated
billion-dollar hedge funds that are completely
disconnected from the consumer and manufacturing market."
Cicio's organization represents companies ranging from Dow
Chemical Co. to Bayer Corp. to BASF Corp. He said Nymex
needs to place tighter controls on intraday volatility, reduce
the number of natural gas contracts any single trading entity
can own, and give more enforcement responsibilities to the
Commodity Futures Trading Commission.
Relaxed federal oversight has helped turn Nymex into an
environment that is too friendly to speculators and
"susceptible to manipulation," Cicio said.
Nymex Holdings Inc. is the parent of the world's largest
energy futures exchange, whose members include
brokerages such as ABN Amro Inc., trading units of
energy producers such as El Paso Merchant Energy LP
and investments banks such as Goldman Sachs & Co.
The exchange's new president, James E. Newsome, is
the former chairman of the CFTC.
Nymex Holdings earned $11.6 million in the first half of
the year on revenues of $109.7 million. But judging by the
$2 million paid for the most recent sale of a seat on the
exchange in October, its members' earnings potential is
even higher.
Average daily trading volume for natural gas futures has
surged 16-fold over the past 10 years, according to
Nymex data. By comparison, oil futures trading volume
has doubled over the same period.
At the same time, commercial traders -- utilities and
industrial consumers who use futures markets to hedge
against price movements in the spot market -- are not as
dominant in the market as they once were. The proportion
of noncommercial traders such as hedge funds and
individual speculators fluctuated at the Nymex during the
mid- to late-1990s, but has trended steadily higher since
2001, according to CFTC data.
For example, in November 2001 noncommercial traders
accounted for about 10 percent of big holders of multiple
gas contracts. They now account for nearly 40 percent.
Critics say the proliferation of noncommercial trading is a
major reason why natural gas prices have become so volatile.
Nachamah Jacobovits, a Nymex spokeswoman, said it's the
reverse: Increased volatility is luring more traders to the
market, including both speculators and commercial entities
seeking to offset their risk in the spot market. "People who
don't hedge get hurt," Jacobovits said.
"There's no question that natural gas is a very volatile market,"
Jacobovits said, but "we have a great deal of resources devoted
to monitoring it."
Indeed, the CFTC, in coordination with Nymex, completed in
August a seven-month investigation into surging natural gas
prices last winter and concluded there was no evidence that
markets were manipulated.
The agency said prices rose sharply -- above $7 per 1,000
cubic feet in December 2003 -- because of
colder-than-expected weather in the Northeast and
predictions made prior to the home-heating season that U.S.
inventories of natural gas would be tight.
While some energy analysts argue there is a complicated logic
underpinning today's soaring natural gas prices, others point
to market speculation, pure and simple.
"The natural gas rally was totally spec driven," James Cordier,
head trader at Liberty Trading Group Inc. of Tampa, Fla., said,
using the industry vernacular for speculators.
Marshall Steeves, an energy analyst at the New York-based
brokerage Refco Group Inc., also said the intense surge in
prices has defied rational market behavior. "The run-up was
crazy, I thought," Steeves said.
While natural gas prices have been falling lately and the
number of speculators betting on lower prices has grown,
the financial pain may not be over for consumers. Conversely,
natural gas producers such as Anadarko Petroleum Corp.
and Devon Energy Corp. still have much to gain and their
stock prices are well above year ago levels as a result.
Futures prices are still up about 50 percent from a year ago,
at $7.12 per 1,000 cubic feet -- closely approximating the
year-over-year rise in oil prices.
One common explanation is that oil and natural gas prices
are linked because some industrial users have the ability to
switch from one fuel or another to power their factories. But
so-called fuel-switching affects only 5 percent of natural gas
demand and the evidence does not support the notion that
prices are higher today because consumption is surging.
According to the most recently available data from the
Energy Department, natural gas consumption through the
first eight months of 2004 was lower than during the same
period in 2003, which was lower than in 2002.
The available supply, meanwhile, is as high as its been
since 1991. The Energy Department reported last week that
total gas in storage is now at 3.3 trillion cubic feet, 9
percent above the five-year average.
Energy consultant Dan Lippe of Houston-based Petral
Worldwide argues that historical comparisons of supply data
are not relevant. "During the winter heating season, you
cannot just look back, you have to anticipate," he said,
noting that traders have bid prices higher due to mounting
fears of a colder than normal winter.
And if weather forecasters' predictions turn out to be wrong?
"Then the (market) bulls are going to be wrong and lose a lot
of money," Lippe said.
----------------------------------------------------
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RECOMMENDED INTERNET SITES
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NEWS AND ANALYSIS
Free sites:
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http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kuik.com/KH/KH.html
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
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(In English)
http://www.resourceinvestor.com/
Subscription sites:
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http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS
Blanchard & Co. Inc.
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Centennial Precious Metals
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www.USAGold.com
Michael Kosares, Proprietor
US (800) 869-5115
Canada 1-800-294-9462
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Gold@gwe.net
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Harvey Gordin, President
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Greg Westgaard, Sales Manager
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178 West Service Road
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Toll Free:1-877-775-4826
Fax: 518-298-3457
and
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leecoins@aol.com
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1-800-822-8080 / 952-929-1129
fax: 952-925-0143
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Contacts: David Schectman,
Andy Schectman, and Bob Sichel
Missouri Coin Co.
11742 Manchester Road
St. Louis, MO 63131-4614
info@mocoin.com
314-965-9797
1-800-280-9797
http://www.mocoin.com
Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
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Metalguys@aol.com
Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
http://www.swissamerica.com
Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
FiGoldstein@swissamerica.com
----------------------------------------------------
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