CFTC still finds no evidence of silver futures market manipulations

Despite silver bugs, who insist the price of silver has been artificially depressed, the second study by the Commodity Futures Trading Commission in four years finds no evidence supporting the allegations.

RENO, NV - 

The U.S. Commodity Futures Trading Commission's (CFTC) Division of Market Oversight announced this week that it has no new evidence of manipulation in the silver futures market from 2005-2007.

The Division of Market Oversight (DMO) examined recent silver market price movement in relations to price movements of other metals; the relationship between the price of NYMEX silver futures and spot prices; and the relationship between the positions held by large short silver futures trades and silver futures prices.

The CFTC report also revealed that NYMEX silver future prices tend to closely track the price of physical silver. However, the DMO asserted "there is no observable relationship between short-futures-trader concentration levels and silver prices."

DMO also found "silver cash and futures prices have risen dramatically between 2005 and 2007, with silver outperforming the gold, platinum and palladium markets, suggesting that silver future prices are not depressed relative to other metals prices."

Their analysis also reached several other conclusions including:

·         "Concentration levels for the top four short futures traders in the silver futures market are comparable to those observed in the gold and copper futures markets, and generally are lower than levels seen in the platinum and palladium futures markets."

·         The compositions of the four top short futures traders, in terms of net positions, changes over time. These traders are diverse, and their futures positions are driven by an even more diverse group of customers.

·         "There is a slightly positive relationship between the total net position of the large short futures traders and silver prices; this suggests that larger short futures positions are associated with higher, not lower prices."

CFTC explained that "advocates of the short-side manipulation argument contend that silver futures prices have been manipulated for close to 25 years. What these advocates fail to indicate, however, is where prices should be, except to argue that prices should be higher than they have been currently or in the recent past."

"With respect to the claims of silver commentators that prices are being suppressed, it should be noted that these commentators have never articulated a credible explanation as to why, for more than 25 years, buyers have not entered the market to purchase silver (at the supposedly depressed prices), thereby driving up prices to a level that these commentators believe is reasonable. In this regard, no barrier to entry has been identified that would prevent individuals or firms from buying cash silver or entering into long silver futures positions. One answer of course, is that, in fact, the market is behaving rationally that both buyers and sellers, individually and in aggregate, have been willing to freely transact silver at prevailing prices," according to the report.

Another issue that has drawn significant attention from silver commentators is the level of concentration among short traders in the silver futures market. However, the DMO said its analysis found that the composition of market participants among the top four net traders is not static, albeit certain traders do appear in the top four significantly more often than others. Meanwhile, the DMO asserted that the top 10 traders "are not monolithic and represent a wide diversity of business interests with diverse customer bases."

Meanwhile, the report noted that silver commentators fear that the silver futures market is vulnerable to a major disruption should the four largest shorts either default on their obligations or be forced to liquidate these positions. However, DMO asserted that "neither of these scenarios are likely to occur."

The DMO concluded that "the level of concentration of short silver traders does not appear to be unusually high nor does it exhibit any usual patterns that would suggest manipulation or illegal activity."

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