Curious Crude Oil & Silver Market Actions Warrant A CFTC Investigation

Once again we find some strange activity occurring in these markets from a trading perspective, and it is time that the increased staff and resources of the CFTC enforcement division look into these two markets in particular.


Curious Crude Action After Pit Close

Let`s start with crude oil.

After the pit closes each day at 1:30 CST, the crude oil market is thinly traded and it is at this time within a relatively low volume trading environment, that crude oil is being dramatically manipulated up each day.

So price wouldn`t trade at these levels when you have the full complement of buyers and sellers and a competitive price market discovery process during each day.  However, after the pit closes, and markets are relatively illiquid, all of the sudden price levels that would not typically hold are boosted upward by as much as .50 to .75 cents each day in late electronic trading from 1:30 to 4:15 CST.

This is how the Crude Oil market is being manipulated upward by a relatively few number of market participants, and this practice should be investigated by the SEC.

The Infamous Silver Market

The next market to look at is the infamous silver market which has had a long history of being manipulated by a few market participants in pursuit of outsized gains. Just recently two traders filed separate suits against JP Morgan and HSBC alleging that these two firms artificially manipulated the price of silver down with collaborating trading activities utilizing enormous short positions in futures and options contracts on Comex. For example, in August 2008 Silver moved from $14.86 to $12.23 in one day, an 18% drop.

This is nothing new.  The Hunt brothers in the 1980`s tried to corner the Silver market, thinking inflation was a real concern, but they used anti-competitive practices by buying over $ 1 Billion worth of silver purchases through physical and futures contracts, and then taking delivery and storing the commodity of their futures contracts, thus artificially taking huge amounts of supply off the market, creating a bubble in the commodity which didn`t reflect the true fundamentals of the market.

Big Banks Move on Silver

Well, the big banks are at it again as silver on Thursday had a nearly 8% increase after already moving up considerably earlier in the week. Silver has gone from $23 an ounce to$26.75 an ounce in two weeks. The price action is obviously indicative of a one-sided market where the major market participants being the big banks are goosing the market up well beyond any underlying fundamental basis for this rise in prices.

In the silver market there are not a widely diversified set of market participants, and heavy collusion on behalf existing market participants, whether intentional or just of being of like mind, is creating major price distortions in the market.

The SEC needs to enforce position limits on these big banks with their exposure to the commodity as their presence is artificially creating another bubble market in Silver, with price reacting strictly to money inflows rather than market fundamentals of supply and demand of the commodity in the marketplace.

Dollar Not a Factor in Price

And to those that think these money inflows were directly correlated to the dollar weakness, the dollar was actually strong on Monday November 1^st, and Friday November 5^th.  And yet these two commodities continued to rise due to speculative money inflows.

It is time the CFTC addresses some of these manipulative market practices on behalf of the investment banks and large institutions as price distortions and artificially inflated price movements that don`t match the underlying fundamentals of supply and demand cause real damage to the economy.

After all, crude oil inventories and their associated products are well above their 5 year averages based upon the true fundamentals of the marketplace, and yet some elderly person on a fixed income has to pay 15 cents more per gallon of gasoline in two weeks time just because Goldman Sachs needs to hit their $20 Billion bonus pool target for 2010 and juices up the price of crude oil as a means to that end.

Static Chaos