Widespread Manipulation of Gold and Silver Prices?

gold and silverTony Daltorio: As we’ve explained before, manipulation of gold and silver prices is happening right here in the United States.

Our Global Resources Specialist Peter Krauth interviewed silver market analyst Ted Butler last year, who explained how big financial institutions were using high-frequency trading to depress silver prices.

And earlier this month, Money Morning Chief Investment Strategist Keith Fitz-Gerald detailed how these same big firms were toying with retail investors in the gold market.

Now, in the wake of the Libor scandal in London, which involved the rigging of interest rates by certain banks, it looks like prices in other markets such as gold and silver could be being rigged in a similar fashion.

Widespread Rigging in Markets

Bart Chilton, commissioner of the CFTC (Commodity Futures Trading Commission), spoke last month about possible ‘fixing’ of prices in other markets besides interest rates.

“Why would they [other markets] be any different in the minds of those that may have sought to push or pull rates?” he wrote in a CFTC statement. “Given what we have seen in Libor, we’d be foolish to assume that other benchmarks aren’t venues that deserve review.”

Chilton believes these other markets “are legit areas of inquiry,” and “every single market needs to be reviewed, and potentially investigated.”

Another group questioning gold and silver price manipulation is the International Organization of Securities Commissions. In a recent paper, it stated that “the risk of manipulation will be greater where participants. . .have both incentive and opportunity to submit inaccurate data or apply a methodology inaccurately.”

The organization added that the problem is particularly acute “where judgment is required in determining the data to be submitted.”

In other words, it’s possible people will put forth data that will make them the most money possible…

“Fixing” Gold and Silver Prices

Turning specifically to the gold market, the price of gold has been “fixed” in London twice a day.

The practice has been in place since 1919 and the fixing is done by only five banks: Barclays Plc, HSBC Holdings Plc, Deutsche Bank AG, Societe Generale SA and the Bank of Nova Scotia. It takes place over the phone, a practice started in 2004.

The “fixing” of the silver price in London, which is “fixed” once a day via phone, is conducted by an even smaller group of banks: HSBC, Deutsche Bank AG and the Bank of Nova Scotia.

In light of Libor scandal, the CFTC is now studying various aspects of the fixings in London for gold and silver prices. It is believed the Commission is looking at whether the fixings are conducted in a proper manner and with enough transparency.

Some investors are already nervous about London’s gold and silver markets since admission that the ratio between metal traded and metal actually existing in London’s bullion market is 100 to 1, according to International Business Times.

Across the pond though, the CFTC inquiries are looked at in a different light. The investigation is seen as a way for the United States (Wall Street) to discredit London as a reliable financial center for the world’s capital and its banks as a safe custodian. London has a monopoly in the benchmark gold and silver prices and physical gold and silver settlement at the London AM Fix.

Homegrown Scandal

Actually, it would be good to see U.S. regulators pursue possible manipulation here at home as hard as they are pursuing manipulation in foreign markets.

The CFTC enforcement division started looking into possible manipulation of the COMEX silver market in 2008. The aforementioned Commissioner Chilton said in August 2012 that there indeed had been “devious efforts” to move precious metals prices downward through huge short positions held by a few U.S. banks.

Most prominent among these banks in the silver market is JPMorgan Chase & Co. (NYSE: JPM).

The bank recently filed a motion to dismiss a case brought against it for silver price manipulation. The judge presiding over the case is still deciding whether or not to grant the dismissal. The judge is looking for the plaintiffs to provide more direct evidence of manipulation, such as the size of JPMorgan’s silver trades on the COMEX, according toSilver Investing News.

If the judge agrees there is something here, then the plaintiffs will be able to obtain JPMorgan records through a court order.

The lead counsel in the case, Christopher Lovell of Lovell Stewart Halebian Jacobsen, told Silver Investing News he’s not overly optimistic that the judge will allow the case to go forward.

If not, perhaps the CFTC investigation will continue. After all, the U.S. Attorney General recently said that the large U.S. banks should not be perceived by the public as “too big to jail.”

Related Tickers: iShares Silver Trust (NYSEARCA:SLV), SPDR Gold Trust ETF (NYSEARCA:GLD).

Money MorningWritten By Tony Daltorio From Money Morning

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