Blythe Masters…call your office.

I have so enjoyed watching this story unfold. Remember this piece?

A certain commodity market analyst named Ted Butler has been writing about commodity manipulation for decades. He found that a few large banks held short positions (had sold promises to deliver) silver on the COMEX equal to hundreds of millions of ounces of silver, a quantity that they were not known to actually own.

In this piece from March 2008:

    The big 4 are now net short 62,229 contracts, or over 311 million ounces. That’s the equivalent of more than 177 days of world mine production. The eight largest traders are now net short 79,042 contracts, or more than 395 million ounces, or more than 225 days equivalent production. Never has there been a greater concentrated position of any type (long or short) in silver, or in any other commodity.

No such amounts of silver were actually on deposit on COMEX in the “Registered” category that would indicate they were available to be delivered to honor a sales contract. In fact, no such quantities of silver were on deposit on COMEX in any category at all, to my knowledge. But the huge net short position has the effect of making it appear that there are hundreds of millions of ounces of silver for sale, suppressing the price, when there in fact were no such quantities available. We could ask about enforcement of the rules, but there’s quite a bit of evidence that the rules weren’t being enforced. There ARE rules about holding a concentrated position that can be used to control the market. But they just didn’t seem to get enforced, you know?

Then, in March of this year, came this blockbuster:

    On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to how they make money doing so.
    In November 2009 Maguire contacted the CFTC enforcement division to report this criminal activity. He described in detail the way JPMorgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JPM. Maguire explained how there are routine market manipulations at the time of option expiry, non-farm payroll data releases, and COMEX contract rollover, as well as ad-hoc events.
    On February 3 Maguire gave two days’ warning by e-mail to Eliud Ramirez, a senior investigator for the CFTC’s Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. On February 5, as market events played out exactly as predicted, further e-mails were sent to Ramirez while the manipulation was in progress.

Soon after that revelation, Mr. Maguire was the victim of a hit-and-run in London. He and his wife survived.

This summer, CFTC announced they be starting to enforce position limits. Shortly thereafter, the major banks announced they were shutting down their prop trading desks, the units who trade the financial / commodity markets for the banks’ own accounts. Silver prices began climbing immediately. Most observers attributed this to the big shorts “covering”, or buying longs to close out their short positions, or perhaps buying actual physical silver in order to meet delivery demands.

Now this: Zerohedge is out with a report that a private investor has filed a manipulation suit against JPM and HSBC, alleging manipulation in the silver markets, and seeking class status for the suit. A copy of the suit is available at the Zerohedge link.