The US Commodity Futures Trading Commission should shortly conclude its four-year-old investigation of the silver market but has gone beyond the schedule that was the wish of Bart Chilton, the commissioner who originally called for the probe.
Chilton told reporters at the 2012 Chicago Hard Assets Investment Conference he expected the investigation to conclude in the near future. “We’re still wrapping it up,” he said. “There’s nothing imminent.” Chilton had said in July that he expected the probe to be completed as early as September. The CFTC launched the investigation of possible manipulation in the silver market in September 2008.
Chilton said in answer to an audience question after his conference keynote address that he still believed that there had been illegal activity in the silver market but he did not elaborate. “I called for an investigation into the silver market and I think that some illegal things have gone on,” he said.” I think there have been illegal actions in the silver market.”
He told reporters later that he was frustrated the investigation had not been completed by the fourth anniversary of the probe’s launch and that he hoped it would be completed shortly,.
Chilton said in his response to the question about large positions in silver, including some allegedly held by JP Morgan Chase, that “in general there have been upwards of 30, close to 40% at times, of one trader – I’m not allowed to say JPMorgan, I’m not allowed to talk about traders’ information – in the silver market. I’ve said it publicly.”
He said speculative position limits are to be implemented on Oct. 12 to cap positions. “What I’ve been calling for since 2008 and is being implemented on Oct. 12 are position limits to insure that no trader has in excess of roughly 10% of a market,” Chilton said. “That’s going to help but it’s not going to solve everything.”
He said the limits, however, will not prevent multiple traders from affecting the market by adopting the same trading strategy.
“Position limits won’t take care or 15 of these guys all having – maybe not 10% because the math wouldn’t work out but for other reasons too – a bunch of these guys coming in with a significant and all taking the same strategy,” he said.
“That’s what I think happened in oil in 2008 because it sure as hell wasn’t based upon supply and demand,” Chilton added. "Crude went to $147.27 and gas was the highest it has been in history – even including today -- $4.11 a gallon nationwide. Supply and demand hadn’t changed much. And then it went all the way back down and nothing much changed there. So it wasn’t supply and demand.”
The new positions limits are “not the be all end all. I’m not sure we have the right levels by the way. I’m not sure that roughly 10% is the right level. But to get these things through my argument was let’s err on the high side. We don’t want to syphon off liquidity. I want to make sure we’re not doing any damange.
“But I think there was need to recalibrate this. I mean is 10% right for silver and palladium and crude? Did we get that right? I mean its sort of a blunt too, right? So I want to make sure that we calibrate it further.”
Phil Burgert is managing editor of ResourceInvestor.com. He can be contacted at firstname.lastname@example.org.