CFTC Commissioner Alleges Silver Market Manipulation; Silver Price Soars

At a Commodity Futures Trading Commission (CFTC) Public Hearing on Anti-Manipulation and Disruptive Trading Practices this morning, CFTC Bart Chilton dropped a bombshell, alleging that the silver market has been manipulated.

A couple weeks ago, Chilton had stated that if the CFTC would not soon issue its own report into its investigation into possible manipulation of the silver market, then he would issue his own statement. Today is when he let loose. His full statement can be read at http://www.cftc.gov/PressRoom/SpeechesTestimony/CommissionerBartChilton/chiltonstatement102610.html.

The two most important paragraphs of Chilton’s statement are:

“I believe that there have been repeated attempts to influence prices in the silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told by members of the public, and reviewing in publicly available documents, I believe violations to the Commodity Exchange Act (ACT) have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.”

“In saying this, I am fully aware of the prohibition from divulging trader names or information about their positions. I am extremely careful not to violate the law in this, or any, regard. I also cannot pre-judge anything the agency may do with regard to our silver investigation, or any other matter.”

Some analysts who have been interviewed by Chilton don’t think he would stick his neck out with such statements unless he had ample documentation to prove them.

For once, the mainstream media quickly picked up Chilton’s statement. In late European trading today, gold was in the $1340's, and silver was around $23.70. Then the US government and its trading partners went into action to suppress prices. By the time of Chilton’s statement, the price of gold had been pushed down to $1,327 and silver to $23.16.

As the news coverage of Chilton’s statement mushroomed, metals prices took off. Gold hit a high of $1,342 and silver $23.97 before subsiding slightly going into the COMEX close.

In his statement, Chilton pointed out that the CFTC had been investigating possible manipulation of the silver market for more than two years. But, he also warned that proving the legal standard of actual market manipulation was extremely difficult. Chilton’s statement concluded with, “I am hopeful that the agency will speak publicly about the investigation in the very near future and when they do that it will be in a more granular fashion than I am permitted from doing at this time.”

As of October 19, eight or fewer traders owned short silver positions of approximately 290 million ounces. Total COMEX silver inventories have fluctuated in the 110-112 million ounces range over the past month. There is no way that these large short positions, of which JPMorgan Chase is suspected of having greatest exposure, can possibly be covered with physical metal. If a run on COMEX silver inventories continues, most contracts will have to be settled for cash—at prices far higher than today’s levels.

I anticipate that the major surge in demand for physical silver will be underway by the end of this week. In my judgment, there is little time left to establish your position at anywhere near today’s prices.

Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes "Liberty's Outlook," a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles". His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.