In Ted Butler's Archive


The recognized commodities exchanges, long-perceived as bastions of the free market and the embodiment of the law of supply and demand are anything but. In fact, the mechanics of these exchanges subvert the markets working at every turn.  All exchanges are run by the insiders who set the rules in accordance with their own best interests. Even exchanges that are publicly-owned, such as the COMEX (owned by the CME Group), only adopt rules and regulations in accord with what’s in the best interest of their most important members. A case in point is a recent Reuters opinion piece by the widely-followed Andy Home. He fully backs the London Metals Exchange’s (LME) recent actions to crack down on “disorderly” trading in copper, by instituting trading rules designed to protect its most important members, which are, invariably, the shorts. “Disorderly” trading is a buzzword for prices moving high enough so as to threaten the shorts with losses.

The copper shortage is due – according to the law of supply and demand – to copper prices being too low. Accordingly, copper prices must rise enough to stimulate new production and discourage consumption – not by the lower prices the LME’s orders seek to achieve. So, in a real sense, the efforts by the LME to intercede on behalf of the shorts and to strive to keep copper prices lower than they would be with no intervention is exactly the opposite of the long-term solution of the higher prices prescribed by the law of supply and demand.

Due to the exchanges’ bias in favor of the shorts being so effective in suppressing prices, I believe much of the blame for why there are so many current shortages in key metals and energy can be linked to that bias. At the first signs prices may flair up the reaction of the exchanges is to batter them back down. With the greatest physical shortages of industrial metals and energy commodities in any of our lifetimes – is not the cause of these shortages prices that have been too low? Pervasive shortages would be impossible if the law of supply and demand was functioning properly. Thanks to the corrupt exchanges messing with the price for the benefit of their inside masters, the world is not producing enough and consuming too much.

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