A Conspiracy With a Silver Lining

As Americans know all too well by this point, commodity prices — for corn, wheat, soybeans, crude oil, gold and even farmland — have been going through the roof for what seems like forever. There are many causes, primarily supply and demand pressures driven by fears about the unrest in the Middle East, the rise of consumerism in China and India, and the Fed’s $600 billion campaign to increase the money supply.

Nonetheless, how to explain the price of silver? In the past six months, the value of the precious metal has increased nearly 80 percent, to more than $34 an ounce from around $19 an ounce. In the last month alone, its price has increased nearly 23 percent. This kind of price action in the silver market is reminiscent of the fortune-busting, roller-coaster ride enjoyed by the Hunt Brothers, Nelson Bunker and William Herbert, back in 1970s and early 1980s when they tried unsuccessfully to corner the market. When the Hunts started buying silver in 1973, the price of the metal was $1.95 an ounce. By early 1980, the brothers had driven the price up to $54 an ounce before the Federal Reserve intervened, changed the rules on speculative silver investments and the price plunged. The brothers later declared bankruptcy.

Some two-and-a-half years later, the Commodity Futures Trading Commission’s investigation is still unresolved, and at least one commissioner — Bart Chilton — thinks that after interviewing more than 32 people and reviewing more than 40,000 documents, there has been enough investigating and not enough prosecuting. “More than two years ago, the agency began an investigation into silver markets,” Chilton said at a commission hearing last October. “I have been urging the agency to say something on the matter for months … I believe violations to the Commodity Exchange Act have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.”

What’s more, Chilton said in an interview last week, that “one participant” in the silver market still controlled 35 percent of the silver market as recently as a few months ago, “enough to move prices,” he said, and well above the 10 percent “position limits” the commission has proposed to comply with Dodd-Frank financial reform law. Since that law’s passage last summer, the commodities exchanges have issued waivers permitting the ownership of silver positions above the limits the C.F.T.C. has proposed, and which were supposed to be in place by January of this year. Yet the waivers remain in place, and the big traders have not been penalized, much to Chilton’s frustration And the mystery deepens: last Thursday, the price of silver fell $1.50 per ounce in less than an hour before recovering. “This was robbery at its most obvious and most vindictive,” wrote Richard Guthrie, a London-based trader, in an e-mail to Chilton. “How many investors lost money and positions to the financial benefit of an elite few?”

It’s getting harder and harder to continue to brush off Andrew Maguire’s claims as the rantings of a rogue trader with a nutty online following. The Commodities Futures Trading Commission should immediately release the files from its investigation into the supposed manipulation of the silver market so the public can determine whether JPMorganChase and HSBC did anything illegal, with or without the help of the Fed. In addition, the commission should start enforcing the 10 percent threshold on silver positions it has proposed to comply with Dodd-Frank law. Basically, the other commissioners must join with Bart Chilton to do the job they are required to do: Protecting the sanctity of the markets and preventing the sorts of manipulation we’ve seen all too often.

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