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Revisiting Silver Manipulation with Ryan Jordan

Revisiting Silver Manipulation with Ryan Jordan

By Ryan Jordan Apr 11, 2012 11:12AM

A few days ago, CNBC aired an interview with famed JP Morgan commodities trader, Blythe Masters. In it, she repeated the standard assertions made by JP Morgan and other large banks that the silver market is not manipulated.

I thought it was important to review what manipulation means, what it does not mean, and why even if Masters is correct, the paper silver market could be in real trouble.

There are two issues many focus on when referring to the silver “manipulation”: 1)concentrated positions and 2) the discrepancy between paper trading and the physical silver market.

Let me take the concentrated position issue first. JP Morgan controls futures contracts equal to roughly 20% of global silver production. This has been called manipulative (most famously by Ted Butler) for reasons that should be obvious. As Butler has pointed out, if one bank controlled 20% of the futures market in oil, wouldn’t there be an investigation?? Who is to stop JP Morgan traders from front-running clients, or otherwise setting off stop loss triggers for High Frequency traders (which I believe happens often), when one bank has such a stranglehold over paper trading?

However, the legal definition of manipulation is very specific, and there would need to be a smoking gun that such unfair trading practices have occurred. Good luck finding that.

But the broader definition of manipulation (in popular parlance, mind you), is the one that I find more troubling. It concerns the disconnect between paper trading and physical supply of metal. As any silver market veteran will tell you, oftentimes an entire year’s worth of silver production TRADES IN ONE DAY at the COMEX. Why is this a problem? It is a problem because one day, the physical market, the real market for silver may disconnect in price from this paper market (sort of what happened briefly in 2008, where premiums on many silver products traded 30% higher than COMEX contracts). The price of physical silver and paper silver eventually converged again. However, they may not do so in the future (or at least not as soon.)

People may lose such confidence in the paper setting game, that they refuse to sell physical silver to buy paper silver and take advantage of the discount provided by futures (in other words, arbitrage.) Then if you are a bank involved in the futures business, you have a major problem, a credibility problem, that could threaten many other parts of the financial- and really- monetary system. People may finally begin to ask the question, what is money, anyway?? Finish Reading...

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Wondering what it will take to blow the top off any manipulation

and find the true valuation of silver. Anyone see anything coming or will the manipulation (if it exists) continue indefinitely?

"When the power of love overcomes the love of power, the world will know Peace." - Jimi Hendrix