Key CFTC meeting on silver price manipulation this week as the big short position is naked on the beach

Peter Cooper

April 15, 2012

The Commodity Futures Trading Commission is expected to give an update on its long-running investigation into silver price manipulation after a meeting on April 18th. But after nearly four years of ongoing investigations silver bulls have learnt the meaning of patience.

A recent appearance on CNBC TV by the head of global commodities at JP Morgan, Blythe Masters has only fueled this controversy with many silver bugs hugely dissatisfied with her testimony (click here).

Complex debate

It is a highly complicated debate to follow. Many silver bugs manage to understand it but then become incredibly frustrated because they cannot clearly communicate this important message to a wider audience. They fall back on their old mantra of ‘just buy silver’. That is not good enough.

Jason Hommel is perhaps the most articulate exponent though his explanation is still too complicated for even most readers of the financial pages of newspapers. But in essence it comes down to this: there are two silver markets, the real one composed of bars of silver and a paper one created by financial institutions.

Over time the paper market has gotten very much bigger than the physical market from which is it ultimately created, and if all those investors holding silver paper suddenly wanted delivery of the silver it is supposed to represent that would be impossible.

Silver fraud

It is therefore a giant fraud and the bullion banks that hold all that paper have to control the price of silver very carefully to stop this bubble imploding. When it does the price of silver will sky rocket because the value of the physical metal will have to very quickly rise to represent its paper value because their will far less ounces of the real stuff than the paper version.

Mr Hommel has a $500 an ounce price target in this scenario. It is coming but who knows when. The CFTC could make it happen but obviously wants to put off the evil day. However, there is clearly a tipping point when the physical price of silver rises too high and the paper market is tripped up and you get the rush back into the real stuff.

This is the classic ‘big short position’ argument for owning physical silver and something very different to the money printing argument that we frequently refer to on ArabianMoney, though it will ultimately be the money printing that tips the silver short position over the edge and that will indeed be the greatest moment to own silver.

If you think gold is going to benefit from central bank money printing over the coming years then it makes sense to own silver too, or in its place, because silver has the additional boost of the big short position to come on top of the money printing. Look on it as a bonus payout for precious metal investors.

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