Silver Markets Manipulated? Or, Hunt Brothers, Where Are You Now?

A commodities trading insider thinks silver markets are being illegally manipulated by politically connected powerful traders, with the collusion of the Federal Reserve; the New York Times takes the story somewhat seriously. Some bits:

Trying to unravel the mysterious rise in silver’s price is a conspiracy theorist’s dream, replete with powerful bankers, informants, suspicious car accidents and a now a squeeze on short sellers. Most intriguingly, however, much of the speculation seems highly plausible.

The gist goes something like this: When JPMorgan Chase bought Bear Stearns in March 2008, it inherited Bear Stearns’ large bet that the price of silver would fall. Over time, it added to that bet, and then the international bank HSBC got into the market heavily on the bear side as well. These actions “artificially depressed the price of silver dramatically downward,” according to a class-action lawsuit initiated by a Florida futures trader and filed against both banks in November in federal court in the Southern District of New York.

“The conspiracy and scheme was enormously successful, netting the defendants substantial illegal profits” in the billions of dollars between June 2008 and March 2010, according to the suit.....

In November 2009, an informant, described in the law suit only as a former employee of Goldman Sachs and a 40-year industry veteran, approached the commission with tales of how the silver traders at JPMorgan were bragging about all the money they were making “as a result of the manipulation,” which entailed “flooding the market” with “short positions” every time the price of silver started to creep upward. The idea was that by unloading its short positions like a time-released capsule, JPMorgan’s traders were keeping the price of silver artificially low.

Soon enough, the informant was identified as Andrew Maguire, an independent precious metals trader in London.....

Maguire was later involved in a car accident that many looking at this situation find mighty suspicious, but he's OK.

In any case, the class-action lawsuit contends that between March 2010 and November 2010, JPMorgan Chase and HSBC reduced their short positions in the silver market by 30 percent, causing the metal’s price to rise dramatically, but leaving them still with a large short position. Now, with the value of silver rising nearly every day, the two banks are caught in a “massive short squeeze,” according to one market participant, that appears to be costing them the billions they made originally plus billions more. Whether these huge losses will show up on the books of JPMorgan Chase and HSBC remains to be seen.....

Nonetheless, the conspiracy-minded have claimed that the Fed must have somehow agreed to make JPMorgan and HSBC whole for any losses the banks suffered if and when the price of silver rose above the artificially maintained low levels — as in right now, for instance. (About all this, a JPMorganChase spokesman declined to comment.)

Some two-and-a-half years later, the Commodity Futures Trading Commission’s investigation is still unresolved, and at least one commissioner — Bart Chilton — thinks that after interviewing more than 32 people and reviewing more than 40,000 documents, there has been enough investigating and not enough prosecuting.....Chilton said in an interview last week, that “one participant” in the silver market still controlled 35 percent of the silver market as recently as a few months ago, “enough to move prices"...

It’s getting harder and harder to continue to brush off Andrew Maguire’s claims as the rantings of a rogue trader with a nutty online following. The Commodities Futures Trading Commission should immediately release the files from its investigation into the supposed manipulation of the silver market so the public can determine whether JPMorganChase and HSBC did anything illegal, with or without the help of the Fed.

The above presented without implied belief in the efficacy and sanity of the CFTC's rules and regs in all cases. Academics muse on "how to define illegal price manipulation." The Hunt Brothers silver machinations explained. Silver price charts for this year.

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  • ||

    Wow. I was just telling my coworkers that I was thinking about selling some/all of my silver now that I've more than tripled my money on it. Could it hit $50?

  • Paul||

    If you've made money, sell it. Otherwise I'll have to tell you the story about how the man lost $2.

  • ||

    Sell it for what? Dollars? Not unless you need cash right now or have a different lucrative investment waiting to be made.

    Unless you think the US is likely to fix its fiscal crisis without involving the printing presses, that is.

  • ||

    Usually people don't worry too much about price manipulation because this happens:

    Now, with the value of silver rising nearly every day, the two banks are caught in a “massive short squeeze,” according to one market participant, that appears to be costing them the billions they made originally plus billions more.

    But if you're "Too Big To Fail" and the Fed will cover your losses...

  • hmm||

    With the banks caught the question might be did a new player start manipulating it. You can only get away with a new strategy until the other guy figures it out. Then it becomes a wash as everyone does it.

  • Paul||

    My understanding is that buyers and sellers manipulate the price of everything, constantly. If we could eliminate buyers and sellers, the price of everything would become more stable.

  • hmm||

    By definition manipulation would be something outside of normal market actions. The issue isn't stability since manipulation often can create stability for the right person.

    Your attempt at humor and trolling yields a D.

  • Paul||

    Actually, it's your sense of humor which yields a D-.

    You fucked up the vibe.

  • hmm||

    My vibe is fine. It's shaking all over.

  • Paul||

    FISH ON!!!

  • Paul||

    artificially depressed the price of silver dramatically downward

    I'm no hot-shot wordsmith, but... I mean, rly?

  • Dept of Redundancy Dept||

    I don't get it, what do you mean?

  • Paul||

    I was going to answer you, then I saw your name and realized you got it. Well played sir, well played.

  • Virginia||

    the Fed must have somehow agreed to make JPMorgan and HSBC whole for any losses the banks suffered

    If this is true, it's only because JPMorgan and HSBC pledged the souls of taxpayer children (drink!) in return. Sounds fair and equitable. Nothing to audit here.

  • Scuffy Nerf Herder||

    Wait a minute. How else is the Fed going to get all those dollars into circulation? Somebody call Krugabe, there's an opportunity to print money here.

  • ||

    I haven't read anyone who trades gold professionally who doesn't believe that there are massive and continuing "naked shorts" of gold by the certain banks acting at the behest of governments and central bankers. This is why I won't play futures contracts in gold - with governments capping the price, the timing of market is all effed up, and futures and options are all about timing.

    A few years ago DeutcheBank got caught out on some of its shorts, and the EMF had to ship some implausible quantity of gold to DB to bail them out.

    If you look at the Commitment of Traders reports recently, there is a profound disconnect between the recent price rise and the reported contracts on silver; that is, silver has taken off, but the reported positions haven't changed much. It sure looks like somebody is cooking the books.

  • Paul||

    Time for a New Silverite movement?

  • pmains||

    I'm fine with that, so long as the silver coins are traded freely without being pegged to gold or the dollar.

  • Scuffy Nerf Herder||

    And here I thought the gov't was all against naked shorts now. Of course, you can imagine the confusion that occurs when you tell a Congresscritter that we're about to assume a naked shorts position.

  • Cliché Bandit||

    The paper gold and silver markets scare the shit out of me. I prefer to hold a decent percentage in specie because when the calls come it will be fist come first served at a 1 to 100 ratio...not my favorite game.

  • pmains||

    These naked shorts would be irrational bets against the inevitable rise of gold, yes? Are these shorts being subsidized with "bailout" money? How long could such a strategy last?

  • ||

    These naked shorts would be irrational bets against the inevitable rise of gold, yes?

    Yes, in the service of "controlling" the price of gold in order to "stabilize" the fiat currency.

    Are these shorts being subsidized with "bailout" money?

    They are being guaranteed, at some level, by the government. The bullion banks, as they are known, are acting as the government's agent. I believe Goldman (surprise, surprise) has the account for the US.

    How long could such a strategy last?

    Until the printing presses break.

  • ||

    Junk silver, ammo, antibiotics, and toilet paper should dominate every paranoid's portfolio.

    I know they dominate mine.

  • Old Mexican||

    Cigarettes. Don't forget cigarettes.

  • hmm||

    And yeast...

  • .||

    Toilet paper? I thought that was taken care of by using the currency. I supose one could also use those damned telephone books that are always being distributed.

  • ||

    Governments try to slow down the rise in gold prices because it is a de facto devaluation of their currency, and governments prefer to be in control of that.

    I would expect the same policy would have to apply to silver, as its hard to disconnect the gold and silver markets.

    So, sure, I assume price capping in both markets, underwritten and covered up by various governments. They can't stop the current 10 year bull market (which is why my long exposure to precious metals is over half my portfolio), but they can slow it down.

    The problem with market manipulation is that it eventually fails, and when it fails, the correction to the unmanipulated price is usually quite violent, overshoots, overcorrects, and generally causes chaos searching for a true market clearing price.

  • TPTB||

    That's the next guy's problem.

  • robc||

    which is why my long exposure to precious metals is over half my portfolio

    Its not that high, but the Philip Morris purchase I made shortly after they lost a lawsuit in the late 90s has paid off well. I didnt catch the exact bottom, but its a negligible difference at this point.

    Plus, its probably paid me more in dividends by now than I orginally paid for it.

  • robc||

    So, yeah, currently the combined dividends of PM,MO, and KFT (MO went spin off crazy) are paying 18.3% of my initial MO purchase price. So Ive easily received more than I paid for it.

    Not the runup gold has had in that time, but until Europeans stop smoking, Im not selling.

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