Are Silver Prices Artificially Low?
Cali Zimmerman

The silver market is being investigated for possible manipulation

Some experts allege manipulation in the silver market

Thirty years ago, the price of silver reached historic highs. At nearly $50 per ounce, the precious metal’s value was unlike anything seen before or since. A variety of factors fueled the skyrocketing prices; the energy crisis of 1979, the weakening of the U.S. Dollar and mounting interest rates all contributed to silver’s impressive value during the period. Today many of these factors are remarkably similar to what they were in 1979, yet the price of silver has remained surprisingly low. Is now the time to buy silver before the prices rise, or is there some force keeping the precious metal’s value down?

As of Jan. 6, the price of silver was approximately $10.85 per ounce. In October 2008, the price went as low as $9.00 per ounce. Some experts have speculated that similar conditions to those surrounding the high silver prices of 1980 could mean that silver is due for a price increase.

The Iranian Revolution in 1979 and Saddam Hussein’s invasion of Iran in 1980 led to an energy crisis that had Americans paying more to fill up their gas tanks than ever before. Around this time the U.S. Dollar was also weak. Today, unrest in the Middle East and rising oil prices are also having a noticeable effect on the world’s economy, and the decline of the U.S. Dollar has been covered by pretty much every publication in the world. The most noticeable difference between today’s conditions and those surrounding the 1980 silver spike is inflation. In 1980, inflation reached a high of 14.76 percent and was combated by increasing interest rates. In contrast, today the inflation rate is at 1.07 percent, and interest rates are decreasing.

Demand for silver has outstripped supply. “Over nineteen major coin shops around the world ran out of silver as the price fell from $21 to $16...from March 19 to April 2, and there are many reports even now that it will take a month or longer to get silver,” Jason Hommel, a silver market analyst, wrote in his Silver Stock Report in May 2008.

In theory, an increased demand and a decreased supply of silver, combined with some of the other factors listed above, ought to indicate that a rise in price is imminent. Yet the price of silver has remained surprisingly low in recent months. In fact, there have been accusations made that the price of silver is being manipulated to keep it low.

Though it had previously denied that there was manipulation at work, in September 2008 the U.S. Commodity Futures Trading Commission (CFTC) announced that it was beginning an investigation into the silver market, according to The Wall Street Journal. But some experts don’t believe this is enough.

“In spite of the ongoing investigation and a higher level of awareness of the issue of concentration, the last two [Commitment of Traders] reports have indicated a level of concentration more extreme than in almost six years. The four largest short traders in COMEX silver futures now hold a net short position of more than 47 percent of the entire market. You have to go back to March 2003 to find a higher level of concentration,” Ted Butler, a world expert on the silver market, wrote in a recent commentary on ButlerResearch.com.

“Smaller concentrated positions have served as the basis for all past charges of manipulation by the CFTC, so the silver concentration can’t be easily brushed aside,” according to Butler. “Even now, months into the latest investigation, no one (inside or outside the CFTC) has stepped up to explain how one or two U.S. banks holding 25 percent of the world production of any commodity could not be manipulative.”

All the same, Butler wrote that the current economic climate ought to be considered good news for silver investments; especially so because silver functions both as an industrial commodity like oil and copper and as a safe-haven investment like gold.

So, should investors consider putting their money into silver while the price remains low? If experts’ forecasts are correct, then the silver price should be poised to rise. And if the allegations of manipulation in the market turn out to be well-founded and the CFTC puts a stop to it, then it’s possible that the price of silver could increase quickly and investors could stand to profit.

“[T]he minute this short concentration ends, the manipulation ends,” according to Butler. “Someday the concentration and, therefore, the manipulation will no longer exist. Then the price of silver will be free, not manipulated. The free price will bear no resemblance to the manipulated price.”

Though there is the potential for profit in this situation, it involves taking on a certain amount of risk along with the investment. Investors are advised to conduct their own due diligence and consider the allegations of market manipulation seriously before deciding to put money into silver.

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