View Full Version : CFTC Relents and Probes Silver Market **silver shortage

26th September 2008, 19:30


CFTC Relents and Probes Silver Market
Persistent Complaints of Foul Play Draw the Still-Skeptical Agency to Investigate


With silver prices falling this past summer, silver bugs world-wide set out to prove that their metal was in short supply and market manipulation was at work. They bombarded federal regulators with hundreds of emails crying foul play and demanded answers.

Though such pleas proved futile in the past, this time the rousing chorus grabbed regulators' attention. On Wednesday, the Commodity Futures Trading Commission confirmed that there's an investigation into the silver market.
[Silver Futures]

The CFTC isn't yet convinced there's systemic wrongdoing and in May published a report saying as much. But the agency decided to take a fresh look, in part to show critics that it checks out complaints, and also to make sure there isn't something new to uncover.

"We take the threat of manipulation in the futures and options markets very seriously and employ a number of measures to prevent, identify and prosecute it," said Stephen Obie, acting director of the agency's division of enforcement.

Silver investors have argued that a handful of U.S. banks have been controlling a large portion of silver's short positions -- or bets that prices will decline -- on Comex division of the New York Mercantile Exchange. Official data from the CFTC showed that two U.S. banks had increased short positions in the silver futures market between July and August by 450% and controlled 25% of the total open interest.

"The proof that this selloff was criminal lies in public data," wrote Theodore Butler of Cape Elizabeth, Maine, in August in a silver newsletter. "The concentrated sale of such quantities in such a short time" caused silver's fall, wrote Mr. Butler, who for many years has been vocal about purported silver-market manipulation. In September he reiterated to readers that they should email the CFTC.

The CFTC had argued in May that the large banks that people assailed for manipulating the market were instead acting appropriately as market makers, who take on futures positions to offset their exposure in over-the-counter markets. Therefore, these traders aren't "naked shorts" and won't benefit from long-term depressed silver prices. Many analysts agree with the agency's conclusion.

Silver stalwarts weren't persuaded. Jason Hommel, a newsletter writer based in Penn Valley, Calif., directed readers to visit their local coin shops at 2 p.m. on Sept. 2 to size up for themselves whether there was a silver shortage. From Michigan to North Carolina and beyond, he says, investors trekked to coin shops. Many reported no silver for sale.

Bart Chilton, one of the CFTC commissioners, said he has received about 700 emails from silver investors since August, far more than the estimated 100 he received from May to July. Mr. Chilton, a Democrat who has criticized the CFTC as doing a poor job communicating with consumers, says he has spent nights and weekends personally answering emails.

Historically, silver has been a volatile market. This year it saw a near-50% drop and remains down 9.5% on the year. Gold is up 6.5%. The agency has long heard from frustrated silver investors. In 2004, it published an open letter by Michael Gorham, then the agency's director of market oversight, after receiving more than 500 letters and emails from silver investors.

That the enforcement rather than oversight division is taking on the issue marks a difference from the CFTC's previous efforts regarding the silver market. The oversight division performs overall market surveillance. The enforcement division looks at activities in a specific time period.

Write to Carolyn Cui at carolyn.cui@wsj.com

26th September 2008, 19:49
WILL it get off the ground with all the bailout wrangling going on? When the bailout gets going the FBI probe of possible fraudulent activities by Lehman/Fannie/Freddie/AIG and who ever else is asking for a gov'mint handout right now would add weight to the need to investigate HOW these short trades were done! And by whom! The CFTC does NOT want to do that level of investigation. That's what the CFTC's surveys and quick investigation reports from before would do for them. People would accept their word and go away. But a forensic computer systems audit has to be performed by the FBI. That's the kind of audit that Bloomberg's people knew about when investigating the demise of Bear Stearns! The SEC has been using the CFTCs enforcement division to be able to level fines for bad banking practices.

So what's going on right now, are these announcements. That may or may not have teeth depending on whether or not the bailout's a done deal, and the FBI probe seriously gets going. The government is doing these investigations. IF they hire the same team that investigated the Bear Stearns demise, then WE will get somewhere.

29th September 2008, 17:56
Ted says it well. There is so much manipulation allowed and apparently silver isn't on the "Can't Short List," and so this is probably a token investigation to "Prove Once and For All" that the CTFC knows best and despite ample evidence, it will be a "White Wash." This is why we need to keep the pressure on Government and the Media to look at the facts and create new rules, allowing transparency of these huge concentrated short positions. "

In fact it should be part of any new bail out bill along with other SEC, Fed and CTFC reforms and regulations. Unfortunately, the corruption runs so deep, it seems these regulatory bodies are "above the law." Its hard to believe that major financial ratings agencies are on the do not short list, along with IBM. What next, a do not sell stocks list?

"...Because market manipulation is the number one priority of the CFTC, any revelation that they might be investigating a manipulation in any commodity is big news. So big, in fact, that such investigations are almost always kept strictly confidential while the facts are determined. This is usually so as not to disturb the market. That the CFTC has chosen to openly reveal this silver investigation is almost unprecedented.

Moreover, what makes this silver investigation a rare event is that the allegations are of a manipulation in progress. To my knowledge, all past investigations were revealed after the manipulation itself was concluded. Not only is it rare for the CFTC (or any government agency) to reveal a serious active investigation, it is unheard of to reveal an investigation of a potential crime in progress. If a regulator suspects a crime in progress you would assume the regulator would first end the suspected crime and then finish the investigation. If the regulator didnít think there was a sufficient evidence of an ongoing crime, then why reveal that an investigation has been opened?

I think this is why there is universal expectation (including by me) that the silver investigation will be a whitewash. I know that silver is manipulated, and Iím glad to see the CFTC investigate. But I canít help but feel suspicious of their objectivity, because they have adamantly denied such a manipulation for more than 20 years. How can they conduct a fair investigation and not be influenced by their past findings? I have been here and done this many times, and I donít feel like getting fooled again...."

"...When they confirmed that this was the clearest case of manipulation possible, I faced a new dilemma. I was inclined to believe that the data was in error. I suspected the CFTC would retract the data. So I was worried about being publicly embarrassed for making a big deal out of what may have been a clerical error. But the more I matched this data against the weekly Commitment of Traders Report (COT) data, I could see the data was accurate. Certainly, if the data was incorrect, the CFTC would have said so by now.

The data is clear - one or two U.S. banks sold short the equivalent of 140 million ounces of silver in one month. Thatís more than 20% of world annual mine production. Less than three U.S, banks sold more than 10% of world annual mine production of gold simultaneously. The price of silver and gold then collapsed by an historic amount. These same banks have used the sell-off as an opportunity to buy back as many of their short positions at a giant profit. Those are the facts.

It is important to put these numbers into perspective, in order to appreciate their significance. One way to do that is by comparing what just took place in silver to other commodities. If one or two U.S. banks sold short, in a period of one month, the equivalent of 20% of world annual production of corn, that would equal one million futures contracts. (25 billion bushels x 20% divided by 5000 bushels). Since the entire open interest in corn futures is one million contracts, a sudden short sale of that amount would crush the price.

If one or two U.S. banks sold short 20% of the world annual production of crude oil, that would be the equivalent of 30 million NYMEX futures contracts. (30 billion barrels x 20% divided by 1000 barrels). Since the entire open interest on the NYMEX is around 1 million contracts, a sudden sale of 30 times that amount would drive the price of oil to ten cents a barrel. It would also be market manipulation beyond question.

The CFTC doesnít need to investigate. They only need to explain why their own data fails to prove manipulation in silver and gold. Save the taxpayer some money and all of us some time. This neednít take days, weeks, or months. This should take, literally, minutes. Why maintain and publish the data in the Bank Participation Reports if the CFTC wonít recognize an obvious manipulation that is a crime in progress...."

mick silver
29th September 2008, 17:57
they well find new way to steal