Manipulation Investigation Launched

We deliberately steer clear of delving deep into the price manipulation theories around precious metals.  They range from full (though clearly secret) Government sponsored shorting of the market to make the dollar and financial assets look like nothing is wrong, to simply big banks doing what big banks do and (legally within current rules) making money playing markets smaller than them.  Whatever the theory, whether you are a “gold bug” or diversified investor the actions in the market make for a very compelling case of manipulation.  A little over a year ago the US CFTC (Commodity Futures Trading Commission) concluded an investigation into this on silver and returned an ‘its fine’ verdict, surprising all but the most sceptical (who expected as much from a government agency).  Well yesterday news broke that the US Department of Justice is launching an investigation into no less than 10 major banks on rigging precious metals markets, as has occurred recently on the likes of Libor.  Full sceptics may say ho-hum but it seems to be getting the attention of others, including insiders, as a possible real shake up, just as it was with Libor.  You may recall Deutschebank withdrew from the gold fix as Germany’s financial watchdog (BaFin) is undergoing the same investigation and now so is the Swiss equivalent (WEKO).  The Chinese grew tired of this some time ago and are hence starting their own price discovery centre with an expanded international Shanghai Gold Exchange.   Silver analyst Ted Butler has this to say after the weekly official Commitment of Traders report was issued on Friday.  For your reference the 8 he refers to are represented in the 10 under investigation…

“Even though the headline number of the total commercial net short position [in silver in last Friday's COT Report] has declined by nearly 14,000 contracts since January 27, the concentrated net short position of the eight largest shorts has hardly budged---and remains over 65,000 contracts. This is still a manipulative position on its face since it represents more than 325 million ounces and 40% of world annual production, an amount unequalled among all commodities. Reviewing the dismal earnings reports by those companies that mine silver, I have uncovered not a one holding any of the 325 million oz held short by the 8 crooked COMEX shorts. Excepting JPMorgan, I doubt any of the other seven big shorts own much real silver, even though the concentrated short position represents more than 30% of all the silver bullion in the world. This is simply preposterous and illegal”

The fact is it has presented a wonderful buying opportunity for us ‘little folk’ and whether it is the result of this investigation or natural forces, markets always eventually return to fundamentals and those fundamentals for gold and silver right now are extremely compelling.