Silver price manipulation stalks bullion market

NEW YORK (Commodity Online): Is manipulation the root cause behind the sudden arrest of rising price of silver, the white precious metal this week?

Silver price has been rising along with gold in the past few months, driven by the bull run in commodities markets globally.

Last week, Comex silver futures contract hit a fresh three-week high of $28.88 an ounce. The silver bulls have gained good upside near-term technical momentum and hit another record of $30.50 per ounce on Tuesday, this week. With this, silver bull run touched a 30-year high.

But on Thursday, silver prices declined sharply to touch at $28.76 per ounce. Though analysts have argued that the drop in silver prices has been thanks to market corrections, there are some bullion dealers who suggest that the silver price is being manipulated these days.

Here is what Silver Investing News reported this week on possible silver market manipulation by banks:

Recently Max Keiser wrote in the The Guardian exposing JP Morgan’s positions in silver, claiming that the bank is acting as an agent of the Federal Reserve, holding down the price of silver, to buoy confidence in the US dollar.

“A lower silver price helps keep the relative appeal of the U.S. dollar and other fiat currencies high. By selling massive amounts of paper silver in the futures market, JPM has been able to suppress the price of the precious metal,” reported Scott Rubin for The San Francisco Chronicle.

JP Morgan also holds massive short positions in silver, according to the Article in The Guardian, upwards of 3.3bn ounces. The company is under investigation over silver price manipulation after whistleblowers alerted the CFTC in November 2009. If the price of silver remains high, or goes higher still, JP Morgan stands to loose a lot of money. It all is a self-fulfilling prophecy of sorts, if investors loose confidence in the US dollar and buy more silver, JP Morgan will loose on their short position, causing investors to loose even more confidence in the US dollar, causing them to buy more silver.

All of this is good for investors in silver as the price has been artificially manipulated downward. Industrial demand for the metal remains high, and supply issues in the future will most likely drive the price higher still.

Market participants who believe the silver market is being artificially controlled say it is major banks, including JP Morgan Chase and HSBC, that have big short futures positions and are trying to keep down prices.

Those who disagree say the futures market is being used as a hedge against positions in the physical and cash markets and that fluctuating short positions is how the markets operate.

These two banks just became subjects of separate lawsuits claiming manipulation of the silver futures and options prices are in violation of U.S. antitrust law.

In October, the US Commodity Futures Trading Commission (CFTC) sought to draft new regulations to stop market manipulation, with a proposal expected at the end of the year. Not surprising that silver quickly came to the forefront.

CFTC had then said during a hearing that the agency was concerned that “there have been repeated attempts to influence prices in the silver market.”

Bart Chilton, who spoke based on his personal beliefs, said regarding the CFTC’s current investigation into the silver market that: “the public deserves some answers to their concerns that silver markets are being, and have been, manipulated.”