Manipulation of the price of money: reality or fantasy?


From the Hunt Brothers to the “money squeeze” of social media, manipulation of the price of silver is a long-standing and much-discussed feature of the silver market.

The manipulation of the price of silver dates back to 1979-1980, when oil baron brothers William and Nelson Hunt allegedly bought more than 35 million ounces of silver worth at least $1 billion.

The Hunt brothers bought both physical silver and silver futures, and took physical delivery on futures instead of just cash. Their actions eventually pushed the price of the white metal to nearly US$50, which is still its highest price to date.

However, their scheme ultimately ended in disaster: on March 27, 1980, they missed a margin call and the price of silver plunged to US$11 per ounce in an event known forever as the name of “Silver Thursday”.

Were the Hunt brothers manipulating the market or dealing with it themselves? The question remains, and it takes on new life today – following historic trades that targeted short hedge funds GameStop (NYSE:GME), retail traders emboldened by Reddit’s WallStreetBets forum and the hashtag #SilverSqueeze stacked in physical silver and silver exchange-traded funds (ETFs) in hopes of putting pressure on big banks with short silver positions.

Members of WallStreetBets have since argued over who was actually grabbing the money, but regardless of where the activity originated, it pushed the money above US$30 to its highest level in eight years. year. The 11% price gain was the metal’s biggest one-day percentage gain since 2008, according to the Financial Times.

More cautious silver market analysts view these recent price-moving activities as impractical, if not downright dangerous. However, long-time money bugs who for years have reported alleged money manipulation by big banks and governments have embraced the situation.

These dichotomous sentiments are part of an ongoing saga in the silver market. Here, Investing News Network (INN) dives into the manipulation of money, from the past to the present.

Money manipulation theory

For at least four decades now, gold and silver analysts and investor market participants have debated the validity of allegations of precious metals price manipulation through COMEX futures contracts by a cartel that would include a group of major banks, including JPMorgan (NYSE:JPM), as well as the US Treasury and the US Federal Reserve.

By maintaining too large a short position in the silver futures market, the theory goes, these banks were sometimes able to suppress the price of the white metal in the face of bullish fundamentals. The belief is that the price of silver will not rise significantly until these players allow it.

CFTC Investigations into Silver Price Manipulation

At the urgent request of independent investors, the US Commodities Futures Trading Commission (CFTC) has repeatedly commented on allegations of silver price manipulation. His most recent investigation, which was confirmed in 2008 and closed in 2013, resulted in no charges.

“Based on the law and the evidence as it currently exists, there is no viable basis for bringing enforcement action against any company or its employees connected to our investigation into the silver markets,” the CFTC said in a statement released to the Times.

However, banks such as JPMorgan have nonetheless been hit with lawsuits for manipulating the price of silver. Amid the CFTC investigation, JPMorgan and HSBC (NYSE: HSBC) were the subject of two separate lawsuits in October 2010 related to the manipulation of silver futures via large short positions.

In September 2011, HSBC was removed from the lawsuit with information that the plaintiffs and the bank had reached a toll agreement; JPMorgan later won the lawsuit dismissal.

These are not the only cases where major banks are involved in lawsuits for manipulation of the price of silver. In another recent case, JPMorgan settled a lawsuit over alleged “spoofing” of precious metals for an undisclosed amount; he also agreed to pay US$920 million to resolve investigations by federal agencies regarding manipulation of several markets, including precious metals.

Are silver prices rigged? 2011 edition

In 2011, INN asked readers the question, “Do you believe the silver market is rigged?” 66% of respondents answered “Yes”. At the time, INN shared the results with some of the most notable names in the precious metals market, and a few were kind enough to comment.

One of those analysts was Jeffrey Christian, managing partner at CPM Group. Christian has never been shy about expressing his position on the subject of manipulation. In 2011, he commented to INN: “Over 90% of those who invest in physical silver are not into conspiracy theories; they are not the “guns and bunkers” crowd (for whom) money is not just an investment, it is a religion.

The 2011 Silver Summit, held in Spokane, Washington, featured a debate on whether precious metal prices are rigged. Moderated by BNN’s Andrew Bell, the conversation featured Christian as well as Bill Murphy, chairman of the Gold Anti-Trust Action Committee (GATA).

Murphy pointed to the mountains of evidence “of the gold and silver price suppression program, which has become egregious almost beyond comprehension”, claiming that GATA gathered information from the public domain, including historical records and the US Federal Reserve’s own minutes.

For his part, Christian said all of GATA’s claims can and have been refuted, directing the public to the CPM Group website. He also had harsh words for GATA, which he sees as ‘a gigantic distraction’ – he claimed its ‘allegations are full of internal inconsistencies that simply don’t stand up to statistical scrutiny or simple logic’ .

Are silver prices rigged? 2021 edition

In response to the excitement of the money squeeze on Reddit and other parts of social media in early 2021, INN took to Twitter to ask the question: “Do you believe that the money market is manipulated?” This time, an impressive 95.6% answered “Yes”.

Has Christian from CPM Group changed his mind? A decade later, he has neither lost his sharp tongue nor changed his stance on handling money. Speaking to S&P Global Market Intelligence, he compared the #SilverSqueeze stock to what happened with the Hunt brothers – and he didn’t mince words.

“(The Hunts) looked at the money and said, ‘Oh, we think this price is going to rise sharply. And they bought a lot of silver and they bought silver futures, and they bought silver options, and then they told everybody what they were buying. (But) these guys are just punks… They have the same short-term thinking process as the guys who stormed the Capitol,” he said.

Christian questioned the ability of retail investors to force the price of silver high enough to hurt those with short positions in the market. Additionally, he noted that major banks such as JPMorgan stand to benefit from a higher silver price, as they did during the silver price spike in 2011. “JP Morgan has in posted record profits on its gold and silver trading that year,” he said.

Similarly, Philip Newman, managing director of Metals Focus, acknowledged the “emotional” nature of the controversy given the “strong opinions” some people have about how the price of silver should be determined. “Their starting premise is that the market is manipulated and therefore we don’t see the true price of silver. We just don’t buy into that view,” Newman told Bloomberg.

“They are trying to fight against something that may not exist. Unfortunately, yes, it makes a big headline, but you can see people losing a lot of money, which is quite sad,” he added.

GATA Secretary and Treasurer Chris Powell weighed in on the other side, saying he agrees manipulation is at play in the silver market. However, he warned that it is not easy to oppose governments and central banks, calling them “the creators of infinite money”.

He explained in a note on the GATA website: “I encourage (Reddit-inspired investors) to inquire about the use of the central bank incentive program sponsored by CME Group, operator of major stock exchanges. US Futures, which offers volume discounts to governments and central banks for their clandestine trading in the commodity futures markets.

The recent surge in silver prices came on the heels of a blockbuster day for iShares Silver Trust (ARCA:SLV), the largest silver ETF. Speaking to INN, Chris Marcus, founder of Arcadia Economics, pointed out that the record inflows do not match Silver Institute silver supply and demand statistics.

“It hit me last night – the only way we know if there’s anything in it is based on the word of JPMorgan, which is the custodian of SLV that just got fined a billion dollars for having manipulated … precious metals – and Treasury markets, I might add,” he said.

Of course, there is also a flip side. Also speaking to Bloomberg, Ross Norman, longtime precious metals market guru and CEO of Metal Daily, shared his thoughts on the money manipulation theory. “There’s also always been this theory that bullion banks have a massive net short position in silver in the New York futures market,” he said. “That’s true, but that’s because they also have a corresponding long position in the London market. But one side of that trade is visible and the other is not. And that’s how this theory grew. and grown over the years.

What do you think of silver price manipulation?

It is clear that today the battle rages between those who fervently believe that big banks like JPMorgan are actively suppressing the price of silver, and those who view silver manipulation as a misguided conspiracy theory and not based on truth.

INN is interested in your opinion on the manipulation of money. Indisputable, or much ado about nothing? Please share your thoughts in the comments below.

This is an updated version of an article first published by Investing News Network in 2011.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Melissa Pistilli, have no direct investment interests in any of the companies mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or completeness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the views of Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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