Potential CFTC Failure To Prosecute For Silver Market Manipulation—The Good And The Bad
By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
Over the weekend, London’s Financial Times came out with a story claiming that the Commodity Futures Trading Commission (CFTC) four-year investigation into manipulation of the silver market would soon to be dropped without and findings of prosecutable actions.
CFTC Commissioner Bart Chilton then issued a statement where he called the Financial Times´ report both premature and contrary to some of the facts. So, there is at least some doubt that this will be the eventual outcome of the CFTC investigation.
However, let’s assume that the CFTC finishes and closes its investigation without any prosecutable findings of wrong-doing, as it did in two prior silver market investigations. What would likely happen if this were to occur?
No one has a perfect crystal ball. But here is my speculation. I would expect the dropping of such an investigation to result in some major mainstream media coverage proclaiming that the silver market is not manipulated.
This, of course, would not be what the CFTC would mean by dropping the investigation. The CFTC merely would say that they were unable to take legal actions against any parties. That is not the same as saying that they found no market manipulation. The CFTC could have documented all kinds of price manipulation that did not rise to the level of prosecutable offenses. But, don’t expect the mainstream media to get the correct implications if the investigation goes away.
As a result of such news coverage, I would expect silver prices to temporarily drop, but by no more than 10% at the most extreme. Some existing silver investors would fall for the mainstream media line as meaning that there is little prospect for higher prices.
However, the sudden drop in prices will, I think, spur even more aggressive purchases by central banks and major investors taking advantage of the bargain opportunity. This is why I don’t expect prices to fall by more than 10%.
With this projected rise in overall investor demand for physical silver, I would expect already tight supply squeeze to lead to market disarray sooner than if silver prices stayed steady.
So, the quick reaction to the CFTC dropping of the silver investigation could temporarily knock down prices. But the whole sequence of events could ultimately result in far higher silver prices occurring more quickly than would happen if the CFTC simply continued researching the issue.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.