From the Hunt brothers to social media’s “silver squeeze,” silver price manipulation is a longstanding and much-discussed feature of the silver market.
Silver price manipulation dates back to 1979 to 1980, when oil baron brothers William and Nelson Hunt reportedly bought upwards of 35 million ounces of silver worth at least US$1 billion. The Hunts were buying both physical silver and silver futures, and were taking physical delivery on futures contracts instead of settling for cash. Their actions ultimately sent the white metal’s price soaring to nearly US$50 per ounce, still its highest price to date.
However, their scheme ultimately ended in disaster: On March 27, 1980, they missed a margin call, and the silver price plunged to US$11 in an event forever known as “Silver Thursday.”
Were the Hunt brothers manipulating the market, or were they facing off against it themselves?
The question remains, and the conversation got new life in 2021 after historic trades that targeted hedge funds shorting GameStop (NYSE:GME). Retail traders emboldened by Reddit’s WallStreetBets subreddit and the hashtag #SilverSqueeze piled into physical silver and silver exchange-traded funds (ETFs) with the hope of pressuring big banks with silver short positions. The activity pushed silver above US$30 to its highest level in eight years, with the 11 percent gain becoming its biggest one day percentage increase since 2008, as per the Financial Times.
More cautious silver market analysts viewed these price-moving activities as impractical or even downright dangerous. However, longtime silver bugs who have for years pointed to alleged silver manipulation on the part of big banks and governments embraced the situation.
What’s the theory behind silver manipulation?
For at least four decades now, gold and silver market participants have debated the validity of allegations concerning precious metals price manipulation through COMEX futures contracts by a cartel that supposedly includes a group of large banks, notably JPMorgan (NYSE:JPM), as well as the US Federal Reserve and Treasury.
By maintaining an overly large short position in the silver futures market, so the theory goes, these banks have at times been able to suppress the price of the white metal in the face of bullish fundamentals. The belief is that the silver price will not rise significantly until these players allow it to do so.
CFTC investigations into silver price manipulation
At the urgent request of independent investors, the US Commodities Futures Trading Commission (CFTC) has commented several times on allegations of silver price manipulation. Its most recent investigation, which was confirmed in 2008 and closed in 2013, did not result in any charges.
“Based upon the law and evidence as they exist at this time, there is not a viable basis to bring an enforcement action with respect to any firm or its employees related to our investigation of silver markets,” the CFTC said.
However, banks such as JPMorgan have nevertheless been hit with silver price manipulation lawsuits. Amid the CFTC investigation, both JPMorgan and HSBC (NYSE:HSBC) faced two separate lawsuits in October 2010 related to the manipulation of silver futures via large short positions.
In September 2011, HSBC was dropped from the lawsuit with reports that the plaintiffs and the bank had entered into a tolling agreement; JPMorgan later won a dismissal of the lawsuit.
In May 2023, another long-standing lawsuit against HSBC and the Bank of Nova Scotia filed in 2014 concerning silver price manipulation was dismissed by a US court.
These are not by any means the only instances of large banks being involved in silver price manipulation lawsuits. In another recent case, JPMorgan settled a lawsuit over alleged precious metals “spoofing” for an undisclosed amount; it also agreed to pay US$60 million to resolve federal agency probes regarding manipulation of multiple markets, including precious metals.
Are silver prices rigged? 2011 debate
The 2011 Silver Summit, hosted in Spokane, Washington, featured a debate on whether precious metals prices are rigged. Moderated by BNN’s Andrew Bell, the conversation featured Christian as well as Bill Murphy, chairman of the Gold Anti-Trust Action Committee (GATA).
Murphy pointed to mountains of evidence “of the gold and silver price suppression scheme, which has become blatant almost beyond comprehension,” saying that GATA has gathered information from the public domain, including historical documents and the Fed’s own meeting minutes.
For his part, Christian said GATA’s allegations can be refuted and have been, directing the audience to CPM Group’s website. He also had some harsh words for GATA, which he considers “a gigantic distraction” — he claimed its “allegations are full of internal inconsistencies which simply don’t hold up to statistical scrutiny or simple logic.”
Are silver prices rigged? #SilverSqueeze
Had CPM Group’s Christian changed his mind? A decade later, he had neither lost his sharp tongue nor changed his position on silver manipulation. Speaking to S&P Global Market Intelligence, he compared the #SilverSqueeze action to what happened with the Hunt brothers — and he didn’t mince words.
“(The Hunts) looked at silver and said, ‘Oh, we think this price is gonna rise sharply.’ And they bought a lot of silver and they bought some silver futures, and they bought some silver options, and then they told everybody what they were buying. (But) these guys are just punks … They have the same short-term thinking process as the guys who stormed the Capitol,” he told the news outlet.
Christian casted doubt on retail investors’ ability to force the silver price high enough that it would hurt those with short positions in the market. Additionally, he noted that big banks such as JPMorgan stand to benefit from a higher silver price, as they did during silver’s soaring prices in 2011. “J.P. Morgan actually recorded record earnings on its gold and silver trades that year,” he said.
Similarly, Philip Newman, managing director at Metals Focus, acknowledged the “emotive” nature of the controversy given the “strong opinions” that some people have about how the price of silver should be determined. “Their starting premise is the market is being manipulated and therefore we’re not seeing the true silver price. We just don’t subscribe to that view,” Newman told Bloomberg at that time.
“They are trying to fight against something that may not exist. Unfortunately, yes it makes a great headline but you could see people losing a lot of money, which is quite sad,” he added.
GATA Secretary and Treasurer Chris Powell weighed in on the other side, saying he believes that manipulation is at play in the silver market. However, he cautioned that it isn’t easy to go up against governments and central banks, calling them “creators of infinite money.”
He explained in a note posted on GATA’s website, “I would encourage (Reddit-inspired investors) to inquire into the use of the Central Bank Incentive Program sponsored by CME Group, operator of the major U.S. futures exchanges, which provides volume trading discounts to governments and central banks for their surreptitious trading in the commodity futures markets.”
“It hit me last night — the only way that we know if there’s anything in there is based on the word of JPMorgan, who’s the custodian of SLV who just got fined a billion dollars for manipulating … the precious metals — and Treasury markets I might add,” he said at the time.
Of course, there’s a flip side there too. Also speaking to Bloomberg, Ross Norman, longtime precious metals market guru and CEO of Metal Daily, shared his opinion on silver manipulation.
“There’s also always been this theory that bullion banks have a massive net-short position in silver in the New York futures market,” he said. “That’s true, but it is because they also hold a corresponding long position in the London market. But one side of this trade is visible and the other is not. And that’s how this theory has grown and gathered momentum over the years.”
What do you think about silver price manipulation?
It’s clear that today the battle rages on between those who ardently believe that large banks like JPMorgan are actively suppressing the price of silver, and those who view silver manipulation as a misguided conspiracy theory not grounded in the truth. What do you think?
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.