The Hindu Business Line : No manipulation of silver prices: US regulator

IN a detailed response to the allegation of silver market manipulation, the US Commodities Futures Trading Commission (CFTC) - regulatory authority for commodity futures - has stated it found no evidence that the silver market has been manipulated.

Investors have been concerned about the recent fall in silver prices. They believed the price fall was unnatural because consumption of the white metal has exceeded new production for many years resulting in drawdown of stocks.

Such a position should have forced the price to move up sharply and not down, they argued.

There is also a conjecture that over the past 20 years, a group of commercial traders have held short futures positions that are so large that they cannot serve legitimate hedging purposes because they cannot be backed by real silver.

These traders have allegedly used these "naked" short positions to downwardly manipulate the price of silver, it is argued.

After studying various contentions, the CFTC, in a 9-page response signed by the director of Market Oversight Division, Mr Micheal Gorham, has sought to ally the fears of investors.

The regulator stated that while there had been a production deficit, there had been no supply deficit.

Large silver stocks have existed throughout the period under investigation, and have been made available as a source of supply at prevailing prices, presumably by many different and independent holders from around the world.

"This has had a dampening effect on price. There is no evidence, however, that silver futures prices have been distorted relative to cash silver bullion prices, i.e., prices that represent the value of `real' silver," CFTC said.

While commercial traders were free to speculate in the futures market, CFTC' s review indicated that the so-called "naked" short positions were not naked at all, but were for most part hedging.

Stating that the allegations implied that these commercials could not be hedging because their positions exceeded immediately deliverable silver stocks, the CFTC remarked that in any futures market, the supply of the commodity deliverable (i.e. silver stocks in New York Metal Exchange warehouse) was generally only a small portion of the total stocks or supply of that commodity that can be hedged.

"Anyone holding the commodity (or having made a commitment to supply or receive that commodity in the future) faces price risk and can hedge that price risk without ever intending to make or take delivery on the futures contract.

"Most hedgers do never participate in delivery. Having used the futures market to hedge their price risk, they are free to buy or sell the physical commodity through their normal cash market channels," the regulator pointed out.

CFTC found no evidence that the commercial shorts were a collaborating group, taking positions in concert to drive down silver prices. The allegation of manipulation was also dismissed on the ground that it failed to provide a coherent motive.

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