(Kitco News) - The U.S. Commodity Futures Trading Commission is seeking 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.

During a Tuesday hearing, one of the commissioners of the government oversight agency said he’s 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.”

Previously, to win a case about manipulation, the CFTC had to prove intent by the trader to control prices, but with the financial overhaul’s new powers to prosecute fraud, the agency now has a lower burden of proof.

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.

Below are comments of market participants, in alphabetical order, regarding the latest developments in regulation of the silver market.

Jeffrey Christian, managing director, CPM

“Look at what Bart Chilton said. He was very specific and very careful. He said ‘I believe there’s been manipulation.’ He didn’t say, ‘I know.’ His belief is based on what’s publically available and not from something internally from the CFTC. It’s the same old, tired garbage.

“The CFTC has studied silver and has found nothing of substance. They issued reports on this in 2004 and 2006. In 2008 Gensler said to the enforcement divisions and the market surveillance divisions to take another look at silver. The political appointees want a popular case; the enforcement division says there’s nothing here.”

“It’s a frivolous lawsuit…. We know how it will end, in tragedy.”

Brent Cook, Editor-Geologist, Exploration Insights

"I think this is really entertaining. Show me a market that is not manipulated. We are talking mostly now to people who invest in junior exploration companies, talk about manipulation. So i believe it has been happening, but SO? Everything else is manipulated too. it is not that big a deal to me. And I am glad they are manipulating it to be honest with you -- we have seen the gold price up 500% and silver price is just rocking. Keep it up!"

Gijsbert Groenewegen, managing partner of Silver Arrow Capital Management in New York

“What is their reason to manipulate? Do they want to make money, or do they have other motives? That’s the first line of attack. You’ll never find why a bank is doing it. Otherwise having a massive short position doesn’t make a lot of sense. Or are there other reasons, say the government wants to keep the price of silver down because they don’t want gold to rise. My feeling is that they will stall it, that they won’t get to the bottom and they’ll say ‘we need more transparency next time.’”

Leonard Kaplan, president of Prospector Asset Management in Chicago

“Ben Franklin said people who can keep a secret are dead. The idea that there is a long-term conspiracy is ridiculous. In the short-term yes, there is, but there are a lot of ways of doing it. If silver is trading at $5 and Chase comes in and says they want to buy it at $4.99, what happens to the price? It goes up because people want to get in ahead of Chase. Is it manipulation? Yes. Is it legal? Yes. It all depends on how you define manipulation and that can get a little scary. Silver can get manipulated like anything else. If ADM, one of the largest grain firms in the world, goes into the corn pit and starts selling, what happens? The price goes down. Other people might sell because they think ADM knows something. If the Fed raises interest rates it’s manipulating the stock market. But to think that bankers are meeting in a smoke-filled room with the Abominable Snowman and the bogeyman is just ridiculous. Banks can’t be naked short. They’re highly regulated. Can they be a little short? Yes. Can they be a little long? Yes.

John Lothian, publisher, John Lothian Newsletter

“The lawsuits are frivolous. Chilton complains that they don’t have the tools to ferret out or fight market manipulation, but now he’s come to the conclusion there’s been market manipulation.

“When markets rise, you can expect to make changes (in positions). They reduce positions. They might want to minimize coverage, it’s the natural progression of markets.

“Banks are not monolithic things. They buy, they sell, they have proprietary trading.
“I don’t know if (Chilton’s comments) will influence the CFTC’s investigation, but it really depends on their interpretation of manipulation. I have every right to try and defend my position in the market … bluffing is all part of the trade.

“The CFTC has to be very careful with how they define manipulation. If you’re a short, you have an obligation to make delivery. You can’t squeeze a long, you can squeeze a short. If you’re long it’s easier to come up with the cash to take delivery, but you have to come up with the commodity if you’re short.”

Brien Lundin, publisher, Gold Newsletter and Owner of New Orleans Investment Conference

“I think that is a potentially explosive issue for the markets. We’ve tracked this since the late 1990s for gold in particular but the amount of central bank selling in gold or leasing in gold and what that has done to central bank gold reserves, there has been a lot of great work since then through GATA.

“As far as silver issue, that is potentially explosive for Silver, it is not and it is important to note this, that this issue no matter what happens to it, is not a potential negative for the metals. So if it has not been factored in at all we are still where we are, but if it does turn out to be something that is really gets exposed that  there is an expose here it will be very positive for the metals.”

Paul Mladjenovic, silver analyst at Raving Capitalist.com and editor, Precious Metals Investing for Dummies

“I’m in the camp where I think large firms have taken efforts to try and control prices. When you have a player like JP Morgan, who has shorted thousands of contracts of silver – that’s an unheard of amount. These are not firms that are hedging production or are industrial users. There are patterns of trade that lend themselves to appear as manipulative. Especially when you see large trades occur near option expiration. I think these lawsuits (against HSBC and JP Morgan) have a lot of validity. I’d like to see it investigated.”

David Morgan, Independent precious-metals analyst with Silver-Investor.com

“I’m glad it’s being looked at…. It’s adding interest. But as Bart Chilton said, it’s impossible to show intent to influence prices,” he said. While he doesn’t believe the plaintiffs will win their lawsuit, “it’s important to stand up and fight. You have to admire these guys. I hope they have deep pockets.”

“I guess that there is likely more scrutiny of the firms’ trading and (that they are less likely to exit these large positions en masse). They will either have to meet margin calls or close out the short positions (which could cause prices to rise)…. The super large sell orders haven't been there for some time. The question again is - will the banks cover large positions or not? If so the price will move up in a similar manner to how it has moved down in the past?”

Bill O’Neill, principal, LOGIC Advisers

“Regarding the lawsuit, I don’t think there is any imminent significance to that. Whether there is market manipulation going on, that’s up to the  CFTC to figure out. They have excellent computers to track that.

“The CFTC has been investigating the silver market for a long time. There’s been a number of investigations – the Hunt Brothers for example. I like to describe silver as a speculators’ playground. There’s a history of volatility in it and when people see that they think maybe it’s market manipulation.

“The big difference between the gold market and the silver market is the dealer community is huge. There’s a lot more commercial paper in gold and that offsets the speculation. That’s one reason why gold is less volatile than silver.

“In general, understanding of the futures market is lacking. It’s increased in recent years as commodities as an asset class has grown. A lot of people don’t understand it and it can be a rude awakening.”

Ned Schmidt, The Value View Gold Report

“Silver lawsuits will have no impact in short-term, if ever. Most likely they will be thrown out. CFTC commissioner comments are meaningless for the CFTC tests for manipulation are well established, and EXTREMELY hard to prove.”

Mark Skousen, Producer, FreedomFest and Editor Forecasts & Strategies

“Well they are not doing a very good job of manipulating it because it is moving substantially higher, obviously  the central bankers want to keep gold down because if gold and silver really take off, particularly gold, that is a monetary commodity and it is a vote against the global monetary system, it is a vote against the dollar. So if gold really skyrockets that could indicate a financial crisis so you can see why government would want to manipulate or keep gold and silver from going up to high.

“I just think it is overwhelming it is just like currency plays trying to manipulate currencies that have proven to be an impossible task so gold is just owned by too many people, too many people can buy so I’m not sure that they could really counter that trend for very long. And even in purchasing power terms gold has done better ever since it was deregulated in 1971 so to argue that it has been artificially held down, why complain about it gold is already doing extremely well.

“You don’t need a conspiracy theory to argue that gold and silver are artificially low, I think they are definitely headed higher.”

By Debbie Carlson of Kitco News dcarlson@kitco.com

<<Back to more Kitco exclusive news

Silver Coin