By Millie Munshi and Alan Bjerga March 25 (Bloomberg) -- U.S. regulators are considering limits on how much of the market for metals including gold and copper that speculators can control after last year’s financial crisis spurred record swings in prices. Hedge funds and other large speculators are “contorting” the market, according to Bart Chilton, one of five members of the U.S. Commodity Futures Trading Commission, which will hear the views of analysts, investors and exchange officials at a public meeting today in Washington. The CFTC, which oversees more than $5 trillion in daily trading, in January proposed adding limits to the energy markets as part of a government campaign to prevent individuals or companies from gaining too much control of a commodity market. Investors including Michael Pento at Delta Global Advisors have said increased regulation will sap liquidity. Position limits “will force speculators to exit these markets, thereby reducing their dominance and eliminating the possibility of speculative price bubbles,” said Michael Masters, the founder of Masters Capital Management, who is scheduled to testify at today’s meeting. Fluctuations in commodity prices have fueled debate about whether speculators contribute to excess volatility. Copper futures in New York more than doubled in 2009, the biggest annual gain ever, after plunging a record 54 percent the previous year. Masters estimated last year that a 2008 bubble in physical commodities cost U.S. consumers more than $110 billion. ‘A Little Regulation’ “Letting the free markets roll has actually rolled us all,” the CFTC’s Chilton said on March 23. “It hasn’t worked out so well. We need a little bit of regulation to ensure we have rational free markets and to control and ensure that there’s no excess speculation.” The limits may curtail investments by large banks and swaps dealers in the metals markets, said analysts including Donald Selkin, the chief market strategist at National Securities Corp. in New York. “We are lurching toward an environment of more and more regulations that will drive money away,” Delta Global’s Pento said yesterday from Holmdel, New Jersey. “Money is going to go where it’s treated best, to other exchanges overseas” or to over-the-counter markets, he said. The Comex in New York, where gold, silver and copper futures are traded, imposes position limits on contracts for immediate delivery, according to regulations posted on the exchange’s Web site. Limits Unnecessary Position limits on futures are neither “necessary nor useful,” according to the CME Group Inc., which owns the Comex, New York Mercantile Exchange, Chicago Board of Trade and Chicago Mercantile Exchange. “Any effort to constrain trading on a U.S. exchange by the major firms that are large enough to hold positions near limits will simply push those firms from regulated and transparent market into the cash market or to a market beyond the regulatory jurisdiction of the CFTC,” CME Managing Director Tom LaSala said yesterday in an e-mailed statement. LaSala was scheduled to speak at today’s meeting. The CFTC should also examine the role of passive speculators, or investors who hold commodities through long-only index funds, Masters said in an e-mailed statement. “Passive speculators are an invasive species that will continue to damage the markets until they are eradicated,” said Masters, whose fund is based in St. Croix, U.S. Virgin Islands. “When passive speculators are eliminated from the markets, then most consumable commodities derivatives markets will no longer be excessively speculative, and their intended functions will be restored.” To contact the reporters on the story: Millie Munshi in New York at mmunshi@bloomberg.net; Alan Bjerga in Washington at abjerga@bloomberg.net

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