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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Crude Oil and Silver Curious Market Actions Warrant CFTC Investigation

Commodities / Market Manipulation Nov 07, 2010 - 06:44 AM GMT

By: Static_Chaos

Commodities

Best Financial Markets Analysis ArticleOnce again we find some strange activity occurring in these markets from a trading perspective, and it is time that the increased staff and resources of the CFTC enforcement division look into these two markets in particular.


Curious Crude Action After Pit Close

Let`s start with crude oil.

After the pit closes each day at 1:30 CST, the crude oil market is thinly traded and it is at this time within a relatively low volume trading environment, that crude oil is being dramatically manipulated up each day.

So price wouldn`t trade at these levels when you have the full complement of buyers and sellers and a competitive price market discovery process during each day. However, after the pit closes, and markets are relatively illiquid, all of the sudden price levels that would not typically hold are boosted upward by as much as .50 to .75 cents each day in late electronic trading from 1:30 to 4:15 CST.

This is how the Crude Oil market is being manipulated upward by a relatively few number of market participants, and this practice should be investigated by the SEC.

The Infamous Silver Market

The next market to look at is the infamous silver market which has had a long history of being manipulated by a few market participants in pursuit of outsized gains. Just recently two traders filed separate suits against JP Morgan and HSBC alleging that these two firms artificially manipulated the price of silver down with collaborating trading activities utilizing enormous short positions in futures and options contracts on Comex. For example, in August 2008 Silver moved from $14.86 to $12.23 in one day, an 18% drop.

This is nothing new. The Hunt brothers in the 1980`s tried to corner the Silver market, thinking inflation was a real concern, but they used anti-competitive practices by buying over $ 1 Billion worth of silver purchases through physical and futures contracts, and then taking delivery and storing the commodity of their futures contracts, thus artificially taking huge amounts of supply off the market, creating a bubble in the commodity which didn`t reflect the true fundamentals of the market.

Big Banks Move on Silver

Well, the big banks are at it again as silver on Thursday had a nearly 8% increase after already moving up considerably earlier in the week. Silver has gone from $23 an ounce to$26.75 an ounce in two weeks. The price action is obviously indicative of a one-sided market where the major market participants being the big banks are goosing the market up well beyond any underlying fundamental basis for this rise in prices.

In the silver market there are not a widely diversified set of market participants, and heavy collusion on behalf existing market participants, whether intentional or just of being of like mind, is creating major price distortions in the market.

The SEC needs to enforce position limits on these big banks with their exposure to the commodity as their presence is artificially creating another bubble market in Silver, with price reacting strictly to money inflows rather than market fundamentals of supply and demand of the commodity in the marketplace.

Dollar Not a Factor in Price

And to those that think these money inflows were directly correlated to the dollar weakness, the dollar was actually strong on Monday November 1st, and Friday November 5th. And yet these two commodities continued to rise due to speculative money inflows.

It is time the CFTC addresses some of these manipulative market practices on behalf of the investment banks and large institutions as price distortions and artificially inflated price movements that don`t match the underlying fundamentals of supply and demand cause real damage to the economy.

After all, crude oil inventories and their associated products are well above their 5 year averages based upon the true fundamentals of the marketplace, and yet some elderly person on a fixed income has to pay 15 cents more per gallon of gasoline in two weeks time just because Goldman Sachs needs to hit their $20 Billion bonus pool target for 2010 and juices up the price of crude oil as a means to that end.

By Static Chaos

http://static-chaos.blogspot.com

© 2010 Copyright Static Chaos- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Louis Nardozi
07 Nov 10, 09:31
Silver manipulation

So you consider the 165 days of world production sold short by 4 or less bullion banks perfectly fine, but the less than 1% of total sales actually taking delivery to be manipulative?


Lone Ranger
07 Nov 10, 13:09
Big Banks Move on Silver?

This is certainly a novel take on recent moves in the silver market, and it's not clear that it's meant to be a joke, so it should perhaps be mentioned that prominent experts on the market -- such as Dan Norcini, James Turk and Ted Butler -- have an altogether different interpretation.

It only takes a glance at the Bank Participation Report that came out just last week to see that the 2 (or fewer) U.S. Banks (read JPM Chase) with big COMEX positions are massively short, not long, silver; and a quick look at the Commitments of Traders Report shows that there is far more concentration on the short side of the market. The 4 (or fewer) largest net shorts are short nearly 40% of annual mine production -- how much of that can be legitimate hedging?

So I don't know where Mr. Chaos is getting his information, but experts see this as the beginning of a short squeeze that may see the (downward) price manipulators finally get their comeuppance (pun intended) -- though so far, it's only the smaller hangers-on who've been forced to cover meaningfully. The longs rightly smell blood: just look at a 3-month chart of the silver price, or the gold-silver ratio, to see how the dips are being bought to ratchet the pressure on the shorts.


Lone Ranger
09 Nov 10, 17:54
Big Banks Move on Silver?

In case anyone was still wondering whether Wall Street banks had naked short positions in the silver market, and were getting squeezed, note that today the rules of the game were changed to help them out.

The Chicago Mercantile Exchange (CME), citing volatility concerns, jacked up margin requirements for all silver futures contracts -- and only for silver futures contracts, despite comparable or greater volatility in other markets.

But it's good news for silver bulls that the Wall Street shorts (JPM Chase) are cheating. In the words of legendary gold trader James Sinclair, "increased margin requirements on metals is a sign of a bull market and a professional tool for covering a short."


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