Silver Price Manipulation – Who Is Behind It?

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Silver Price Manipulation - Who Is Behind It?The first week of May’s 2011 blood bath in the silver market has raised the suspicions of some analysts and traders. You may or may not have heard the word manipulation thrown around. This shockingly fast decline of silver by nearly thirty percent in less than a week conjures up memories of unfair price manipulation in the market that has gone on before.

In the following paragraphs, you will read about the possible players who are trying to keep a lid on the rapid silver price appreciation that has been overdue for literally decades.

What Factors Could Have Caused A Pullback in Silver Prices?

You might start by asking yourself is this pullback manipulation of the silver markets at all? There have been numerous attempts to explain why silver would fall off of a cliff after months and months of steady and sometimes breathtaking gains. The fundamentals for silver are certainly real and present. Industry heavily demands it, as do investors who look for a so called poor man’s alternative to gold to hedge against anticipated inflation and currency debasement by the governments of the U.S. and the West.

There was big news over the weekend of May first that some have used as an excuse for silver’s fall. Al Qaeda mastermind Bin Ladin was finally killed, and this sparked at least a temporary rally in the dollar. Some who hold silver and gold as protection against uncertainty in the world may believe that this reduced the need for the precious metals. The truth is that the terrorist situation is more dangerous than ever now in the wake of the martyring of the head of the greatest worldwide terrorist organization. Silver and gold should be up not down on the news.

Others have said that a correction in silver was long overdue. After all, the metal did rise over eighty percent since the end of 2011. That might explain some of the price action, but corrections tend to be in the neighborhood of ten percent, not the almost thirty percent that silver suffered.

Still other pundits have claimed that softer economic data that showed slowing economic growth around the U.S. and world is to blame. Since silver is heavily used as an industrial metal, a decline in future world growth might affect its demand and prices some. Once again, this does not warrant such a steep fall in the price. This idea also completely leaves out the significant reconstruction needs in Japan.

Could The CME Group Have Manipulated the Price of Silver?

The Chicago Mercantile Exchange group is the largest operator of futures markets in the world. Silver is heavily traded via paper contracts in large five thousand ounce quantities on their commodities trading floors. The CME is able to influence the amount of these contracts that investors buy and hold when they raise the margin rates.

Beginning on April 25th and extending through ten days that led up to the massive drop in silver prices, the CME raised the minimum margin requirements five separate times. On some exchanges, this caused the margin percentage that you have to keep for each contract to rise from three to nine percent. The Comex exchange in New York that the CME owns became the latest to raise its silver margins by eighty-four percent on May ninth. These moves had a measurable effect on open silver positions, as investors closed out fifteen percent of their open interest in silver since the exchanges began to enact these higher margin minimums.

Why Would the CME Potentially Manipulate the Price of Silver?

Naturally the Chicago Mercantile Exchange has a defense for why it has raised margins by such an astonishing amount in less than two weeks. They claim that because of previously unseen amounts of volatility, they had to do something. In order to protect investors from the higher levels of risk that they face, the CME says it raises the margin amounts that it requires. What makes this argument suspicious is that they continued to raise the rates until they crashed the price and wiped out many of the same silver investors that they claimed they were trying to protect.

There is another argument for why the CME would go through the trouble to stop the run up by any means necessary. They may have been coerced to do this by the Federal Reserve or other elements of the U.S. government. There is historical precedent for government interference in the silver markets and their price that goes back to only the early 1980’s.

Why Would the Government Want to Manipulate the Price of Silver?

Neither the CME nor the U.S. government will have forgotten what happened when the Hunt Brothers attempted to corner the silver market back in the early 1980’s. The price of silver rapidly climbed to over $50 per ounce before the Federal Reserve and the commodities exchanges stepped in to force them to unwind their positions.

Silver is priced like gold primarily in U.S. dollars. The American government will not let silver as an alternative currency run too far, too fast. This is because when precious metals rapidly appreciate, it means that the dollar is aggressively depreciating. Gradual depreciation of the dollar they can and do accept, but too much in a short period of time would lead to hyperinflation, or prices of goods and services that rise astronomically, and possible dollar collapse.

Who Controls Large Amounts of Silver and Could Manipulate the Prices?

There are two noteworthy men in particular who held large silver positions until the crash in prices began. One of them is the richest man on earth, Carlos Slim. The other is George Soros, the famous commodities and currency investor. Both of these men sold off large silver positions as the price started to come down. You might ask if this qualifies as manipulation.

Their actions caused other investors to scurry for the exits, and this played a part in the silver price route. If they took profits at the peak and then purchase their silver holdings back again at a much lower price, then they become more complicit in price manipulation, since their actions could move the markets.

Has the Silver Bull Market Come to An End in Light of the Prices Crashing?

If you are a silver investor, you may be worried that this dramatic price action signals an end to silver’s historic run. Nothing could be farther from the truth. The weakness in the dollar is a major part of the run up in both silver and gold, and this has not changed at all since the correction began in May. If anything, the Fed has convinced more investors that they simply can not raise rates any time soon because of the weak economy and the enormous government debt loads that they must service at the interest rates that they set. Fears of inflation from the Fed’s continuous dollar printing have also not been diminished.

The rally in silver can not begin to stop until three things happen. The instability in the world that surrounds the Middle East will have to go away. The ongoing multiple year investigation of perceived silver market manipulation by the silver bullion banks led by JP Morgan Chase will have to be completed. Most of all, the Federal Reserve will have to aggressively raise interest rates. Does it look to you like these factors will all come together any time soon?

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