The Silver Manipulation Bombshell

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He gave them fair warning.

Bart Chilton, a commissioner for the U.S. Commodity Futures Trading Commission (CFTC), earlier this month announced his intention "to speak out on the matter" of the commission's multiyear investigation into the silver market, adding: "I think the public deserves some answers in the very near future."

He has kept his word, delivering a crystal-clear assessment of what he has personally uncovered with respect to silver manipulation.

Chilton's full statement is posted on the CFTC's website (link), but the core of his message can be found in the following passage:

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 reviewed in publicly available documents, I believe violations to the Commodity Exchange Act (CEA) have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.

On restoring integrity
He's not exactly beating around the bush, is he? To the contrary, Chilton's choice of words speaks directly to the long-standing allegations of foul play raised by seasoned silver market participants. Ted Butler, who has been a central figure in pressuring the CFTC to take action on this issue, stated that Chilton's statement "goes a long way toward restoring integrity in the CFTC."

Speaking of restoring integrity at the CFTC, Chilton is not the only agency figure taking his concerns to the public. George H. Painter, one of only two administrative law judges at the CFTC, alleged in his public retirement notice filed last month that his colleague, Judge Bruce Levine, has effectively made good on a promise he reportedly made more than 20 years ago to "never rule in a complainant's favor."

Finally, taking this integrity discussion back to silver, Chilton's professional assessment forces market observers the world over to grant fresh consideration to the whistle-blowing testimony of London precious-metals trader Andrew Maguire, who let the commission know of his allegations of silver price manipulation (including a warning of looming manipulation efforts on a specific later date). Not surprisingly, Maguire's assertions were widely met with incredulous opposition.

It appears, however, the CFTC may ultimately have taken those claims very seriously. The Wall Street Journal is reporting that CFTC lawyers have interviewed metal traders employed by JPMorgan Chase (NYSE: JPM  ) and other metals trading firms in response to claims levied by "a trader in London."

The most likely outcome
Chilton refrained from delving into the specifics of the investigation, and also from forecasting a particular outcome of the CFTC's investigation. What he did offer, however, was his opinion regarding the best way to proceed. As he points out, the Dodd-Frank Wall Street Reform and Consumer Protection Act (aka FinReg) confers fresh authority upon the CFTC to address manipulation in commodity markets.

However, he conceded that even with those authorities, "the legal definition of manipulation under the law is a high bar to prove." As such, Chilton argued that attempted manipulation and other potential violations of law will be easier to prove than manipulation itself.

What does this all mean for silver?
I suspect that determined opponents to the notion of silver price manipulation will reference the lack of a massive upside breakout in silver prices following Chilton's statement as evidence that no price suppression exists. I would consider such an interpretation to be erroneous on multiple counts.

First of all, silver has already surged abruptly higher in recent weeks, marking more than a 25% upward move in just over two months. Ben Davies, chief executive of London-based hedge fund Hinde Capital, believes that recent pricing strength may have "curtailed the activity," and that an additional direct impact upon the price of silver is unlikely.

For disciplined long-term silver investors like myself, the desire to see increased transparency and enforcement against fraudulent market practices has never been about spawning a violent upward surge in the silver price. Violent movements in either direction are not in the best interest of investors. By lifting a veil of silence from the regulators' deliberations on the matter, I believe Commissioner Chilton has permitted the silver market to grow decidedly more resilient to any further attempts at price manipulation.

As such, I believe a heavy weight has indeed been removed from the shoulders of this silver market, and that subsequent accumulation of fundamental drivers for higher gold and silver prices will more readily exert their market-derived impact upon silver. I commend Commissioner Chilton for stepping forward courageously as a champion for the public interest.

I maintain my long-standing $50 price target for silver, and I continue to urge that Fools give careful consideration to acquiring some measure of silver exposure. The Global X Silver Miners ETF (NYSE: SIL  ) is one terrific place to look, with its top holdings dominated by my Foolish picks like Silver Wheaton (NYSE: SLW  ) and Pan American Silver (Nasdaq: PAAS  ) . With alluring growth prospects like Alexco Resource (AMEX: AXU  ) and Endeavour Silver (AMEX: EXK  ) also making the cut -- not to mention low-cost superstars like Hecla Mining (NYSE: HL  ) -- this ETF of silver mining stocks is a discerning Fool's silver bullet.

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Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 62 potential investments, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares in Silver Wheaton, Pan American Silver, Hecla Mining, Endeavour Silver, and Alexco Resource. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2010, at 5:24 PM, dancerdon wrote:

    Thanks for getting this out in the open.

    Hopefully the CFTC will do something about this. This is what their job is,, right.

    If they can't fix this problem, they need to close their offices and save the tax payers alot of money.

    Mr. Painter needs to go to Jail with the other crooks from JPM, and Goldman Sacks.

    Give them Hellllll Mr. Chilton, you'll go down in History for being a True American if you can stop this fraud. 10-4.

  • Report this Comment On October 28, 2010, at 3:04 AM, Yourdeadmeat69 wrote:

    The pressure on CFTC has been increasing geometrically, and I wouldn't be surprised to see the past pop in silver prices arising from the feeling, Ted Butler, Peter Schiff, Mark Faber, all the pundits have asked why the silver ratio to gold has faltered to the point, gold is 40% above its all time high, while silver, which follows gold, is 50% BELOW its all time high.

    If you slow level two trading to a crawl, you can see the phantom trades of 1000's of silver contracts appearing and disappearing for a microsecond. These thumbs upon the roulette wheel auger the price down.

    Like a submerged balloon, the balloon just keeps getting harder and harder to keep underwater.

    Safeguards against computer program driven piracy are the answer.

    The CFTC baby step, and the promulgation of class action pending against JPM and others, is the right path, however long and arduous.

    At the least, subjects should be enjoined, stopped legally from entering the silver market or its derivatives while the investigation persists.

  • Report this Comment On October 28, 2010, at 11:44 AM, XMFSinchiruna wrote:

    A solid play for post-manipulation silver:

  • Report this Comment On October 28, 2010, at 3:41 PM, frankinCA wrote:

    I am seconding the idea of silver manipulation after reading 2 years of Butler's, several years ago, reports defining the manipulation without identifying the parties involved. I believe the highest price of silver occurred during the Hunt brothers attempt to corner the market and temporarily did so at which time that price was $60 an ounce. With inflation included the price of silver should be much higher than the $20 it now is, and is not high as the normal relationship to gold as observed over the years. I like CDE which is one of the US based companies and has years of experience in the rare metals mining in the western hemisphere. It deserves to be on your list as it has improved it's business acumen so that it is making better use of it's people and resources.

    Go CDE Go!

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