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Is Silver Price Manipulated? Maybe, but That's the Wrong Question

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Just like in the case against JPMorgan, price manipulation is hard to prove. The better question is, what can you do to make sure you make money on your silver investments regardless?

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What they did contend, however, was the intent to suppress prices. And the plaintiffs' complaint didn't provide any facts which would prove otherwise. The intent part can be actually quite hard to prove. The lawsuit cited JPMorgan traders bragging about their possibility to control the market and success in doing so. The main problem here is that the suit was formulated in a general way and didn't supply any concrete situations in which it could be established that person X from JPMorgan phoned person Y from JPMorgan and said "Hi, X, I just rigged the market." This is exaggerated a little bit, but without such a "smoking gun," or at least a loaded one, the claims that the traders were boasting about their ability to suppress the market boil down to one magic word. Hearsay. Which is not admissible in court.

Now, let us break it down for you into two pictures: the one seen by the plaintiffs and the one examined by court. The plaintiffs identified situations in which silver prices behaved "strangely," mostly situations in which silver dropped significantly without any apparent reason. Then they looked at the market players and found out that JPMorgan is the biggest on the short side of the market. Up to that moment, the analysis is correct but the next point is flawed from the legal point of view. Namely, the plaintiffs came to the conclusion that JP Morgan had to be involved in those "strange" depreciations, mainly based on rumors circulating among precious metals investors.

The court saw the "strange" price patterns, but they didn't provide any proof of market manipulation – markets can both appreciate and depreciate strongly without manipulative activities. Judge Patterson acknowledged that JPMorgan had the ability to influence the market but the most important part, the intent, was clearly unsubstantiated.

So, it would take an important witness to change the outcome of such a case. Someone who actually saw the manipulation taking place (if any manipulation was taking place), not just a person who overheard some bits and pieces from a different department within the bank.

Then, if any manipulation is taking place in the silver market, it would probably take an insider from one of the institutions involved in such alleged manipulative activities to speak. What is very important here is the fact that accounts of people connected to the silver market but not directly able to witness any supposed wrongdoing wouldn't count. So, complaints of whistleblowers who, based on their market knowledge and experience, believe that the market is manipulated, just as Andrew Maguire did, don't amount to much in court.

Since both the CFTC and the court have dropped their cases against JP Morgan, the company has been legally freed of any accusations. There is no conclusive proof linking any actions of JPMorgan to price behavior in the market, no matter how regular price patterns resulting in silver depreciation might seem.

Is silver price manipulated? It might be, but given that it would be so difficult to prove it, that is not the right question to ask in our view. The correction question would be if anything can be done to make sure that you make money on your silver investments whether silver is manipulated or not. The answer to this important question is yes, it can be achieved thanks to diversification of strategies and keeping at least part of one's silver holdings in the physical form.

In such a situation when there are lots of rumors circling around but no conclusive evidence, it might be best to analyze the data for yourself. We actually did that during the development phase of one of our soon-to-be-released investment tools, True Seasonals. Our results suggest that there are depreciation patterns around the expiration dates of derivatives. Because of that, regardless of the fact if any manipulation is taking place in the market or not, it's best to remain particularly cautious about your trading activities on the expiration of gold and silver futures and options.

For the full version of this essay and more, visit Sunshine Profits' website.

Twitter: @SunshineProfits
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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