Moving to control abuses in the sale of highly speculative investments in gold and silver, the Commodity Futures Trading Commission yesterday took the first step toward banning so called "leverage contracts."
The CFTC announced its intent to require the contracts to be sold only: on regulated futures exchanges as of January 1, 1980.
That would effectively put out of business several firms that now specialize in selling gold and silver leverage contracts directly to the public.
Often sold by telephone and on the installment plan, leverage contracts allow customers to buy a commodity -- nearly always a precious metal -- at some future date. The buyer "leverages" his investment by not paying for the commodity until it is delivered, but fixes the price as of the date of the sale of the contract.
In rising gold and silver markets leverage contracts can be highly profitable, but in some cases the cost of the contract has wiped out many profit from increases in the selling price of the metal.
At yesterday's meeting the CFTC formally announced its intent to determine that leverage contracts are futures contracts and therefore under the commission's control.
Because futures contracts can legally be traded only on regulated exchanges, the decision would bring the contracts under the surveillance not only of the Cftc, but also of the self-regulatory agencies of commodity exchanges.