Are silver prices being manipulated?

Silver was trading over $21 per ounce in early December 2009. It was the highest silver price seen in decades. Today, the price has dropped to less than $18 per ounce leading the National Inflation Association (NIA) to issue a silver update warning a silver short squeeze might be on the way.

The current situation in the silver market have gone largely unnoticed by investors and the media. Yet what this “could be the largest fraud in the history of the world” according to the NIA.

It is important to realize that the price manipulation, if it is in fact occurring, is occurring in the paper market. The physical silver market is tighter than ever before, thanks in large part to the volume of American Silver Eagle coins being produced by the U.S. Mint (more than 9 million in the first quarter of 2010 alone). All U.S. silver mines are producing only 40 million ounces of silver annually (up from 36 million ounces in 2008 when the U.S. was the eighth largest silver producing country in the world).

What is happening in the paper silver market is far more subtle and concerning, especially since most individual investors holding paper silver (or gold) believe they own the physical commodity. Should investors call for physical delivery of these precious metal, the NIA believes it will cause the biggest short squeeze in the history of all commodities.

The manipulation began the day Bear Stearns failed at the end of 2009. Few realize that at the time Bear Stearns was a major holder of silver paper and on the verge of being forced to cover their silver short position. The U.S. Federal Reserve orchestrated a bailout just in time and JP Morgan took over Bear Stearns short position in silver gaining complete control over the paper price of silver. Through naked short selling (selling paper silver that is not backed  by physical silver), JP Morgan was able to force the price of silver down below $9 an ounce from its $21 per ounce high only a short time before.

Another sharp decline in silver prices occurred in February 2010. Several individuals, including Andrew Maguire an independent metals trader,predicted the drop and alerted the U.S. Commodity Futures Trading Commission (CFTC)  Enforcement Division that JP Morgan was about to manipulate down the price of silver. The evidence provided was not enough to stop the event and the price of silver was forced down to $14.62 from $16.17 earlier in the month. Further Maguire was not allowed to speak at a CTFC hearing on limiting gold and silver positions held b banks. Some, but b no means all, of the evidence might have presented at the hearing by Bill Murphy had technical difficulties not ensued.

NIA believes the precious metals markets, both silver and gold, are currently being artificially supressed by paper gold and silver that does not physically exist. Because the silver market is very small and the short position is so concentrated, the price is easy to manipulate. It is the NIA’s opinion that the CFTC is under pressure not to do anything about the manipulation because the lower gold and silver prices are, the stronger the American dollar seems to be.

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