Curious Crude Oil & Silver Market Actions Warrant A CFTC Investigation

Static Chaos's picture

Once again we find some strange activity occurring in these markets from a trading perspective, and it is time that the increased staff and resources of the beefed-up CFTC enforcement division look into these two markets in particular.

Curious Crude Action After Pit Close

Let`s start with crude oil.

After the pit closes each day at 1:30 CST, the crude oil market is thinly traded and it is at this time within a relatively low volume trading environment, that crude oil is being dramatically manipulated up each day.

So price wouldn`t trade at these levels when you have the full complement of buyers and sellers and a competitive price market discovery process during each day.  However, after the pit closes, and markets are relatively illiquid, all of the sudden price levels that would not typically hold are boosted upward by as much as .50 to .75 cents each day in late electronic trading from 1:30 to 4:15 CST.

This is how the Crude Oil market is being manipulated upward by a relatively few number of market participants, and this practice should be investigated by the SEC.

The Infamous Silver Market

The next market to look at is the infamous silver market which has had a long history of being manipulated by a few market participants in pursuit of outsized gains. Just recently two traders filed separate suits against JP Morgan and HSBC alleging that these two firms artificially manipulated the price of silver down with collaborating trading activities utilizing enormous short positions in futures and options contracts on Comex. For example, in August 2008 Silver moved from $14.86 to $12.23 in one day, an 18% drop.

This is nothing new.  The Hunt brothers in the 1980`s tried to corner the Silver market, thinking inflation was a real concern, but they used anti-competitive practices by buying over $ 1 Billion worth of silver purchases through physical and futures contracts, and then taking delivery and storing the commodity of their futures contracts, thus artificially taking huge amounts of supply off the market, creating a bubble in the commodity which didn`t reflect the true fundamentals of the market.

Big Banks Move on Silver

Well, the big banks are at it again as silver on Thursday had a nearly 8% increase after already moving up considerably earlier in the week. Silver has gone from $23 an ounce to$26.75 an ounce in two weeks. The price action is obviously indicative of a one-sided market where the major market participants being the big banks are goosing the market up well beyond any underlying fundamental basis for this rise in prices.

In the silver market there are not a widely diversified set of market participants, and heavy collusion on behalf existing market participants, whether intentional or just of being of like mind, is creating major price distortions in the market.

The SEC needs to enforce position limits on these big banks with their exposure to the commodity as their presence is artificially creating another bubble market in Silver, with price reacting strictly to money inflows rather than market fundamentals of supply and demand of the commodity in the marketplace.

Dollar Not a Factor in Price

And to those that think these money inflows were directly correlated to the dollar weakness, the dollar was actually strong on Monday November 1st, and Friday November 5th.  And yet these two commodities continued to rise due to speculative money inflows.

It is time the CFTC addresses some of these manipulative market practices on behalf of the investment banks and large institutions as price distortions and artificially inflated price movements that don`t match the underlying fundamentals of supply and demand cause real damage to the economy.

After all, crude oil inventories and their associated products are well above their 5 year averages based upon the true fundamentals of the marketplace, and yet some elderly person on a fixed income has to pay 15 cents more per gallon of gasoline in two weeks time just because Goldman Sachs needs to hit their $20 Billion bonus pool target for 2010 and juices up the price of crude oil as a means to that end.

Static Chaos 

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Ludwig Van's picture

 

Excerpted from *The Silver Alpha,* by Jim Willie (written 11/3/10, before AG's $2 run-up)

 

When professional equity analysts ply their craft in examining the merits of a certain stock, they often use a simple statistical technique. They fit a model of the growth in a stock Y versus the sector X in which it trades, like BAC (Bank of America) versus the BKX (bank index). They fit a model of the growth of a major stock Y versus the X market backdrop, like IBM versus the S&P500 index. A stock Y performs well if it does better than its sector or does better than the entire market. That shows up as a BETA over 1.0 within the fitted model often using data as weekly change entries in price for X and Y. Take silver as Y and the entire commodity arena as X, as measured for instance by the CRB index. Clearly silver rises and falls with the commodities, and even makes swings with more volatility than other items. That testifies to a high silver BETA. Lately, the silver move has been powerful, much bigger than other commodity items since it is being recognized as a currency hedge, a safe haven asset, with the menace of lawsuits and investigations hanging overhead. In fact, Silver is a currency, if pure money can be classified as currency at all. Like gold, silver is a super-currency.

Y  =  α  +  β X

The important aspect to highlight in the linear price change model is the ALPHA component. When an asset or stock has a particular advantage or unique strength, it can outperform its entire class. Take for instance a pharmaceutical firm with a vaccine discovery, or a computer firm like Apple with a nifty IPod winner, or a mining firm with a huge ore discovery or great process improvement. Silver and gold each share a robust ALPHA feature that is not often mentioned, even in the gold community. As the monetary system crumbles further, as the big banks topple amidst insolvency, as the sovereign debt for certain nations defaults, as the USGovt deficits spiral endlessly into the $trillions, the concept of real money is being questioned by important chambers of global finance. Money wants to escape the false monetary clutches, and find true safe haven. Sound money is sought out with increased vigor and even urgency to preserve wealth. At the same time, the whiff of illicit activity from at least two decades of enormous alleged naked short positions has conspired to suppress the price of gold & silver. The slow healing of the market alteration reveals the manifestation of the Silver Alpha, during its release.

 

Full article --

http://www.kitco.com/ind/willie/nov042010.html

 

 

RoRoTrader's picture

Upcoming POMO to ramp from $10 billion to $27.5 billion per week.

Price distortion is its sugar daddy.

If the middle class ever wakes up and elects its sheriff look the fuck out.

RoRoTrader's picture

PS......there is no SEC........it is an illusion........hello,

RoRoTrader's picture

Excuse me, I left out an important point;

there is no SEC......it is another illusion paid for by taxes taken/given from/by the Middle Class.

hello.......out there.

there must be some big laughs around the FED table meetings.

Admiral Bolitho's picture

Inflationary fears are a major reason for the uptick in Silver.  It is Gold's crazy brother.  Sooner rather than later I think Silver will take off as more middle income households buy as a hedge to QE234567.

Mediocritas's picture

The signal to noise ratio gets even lower in the contributors section.

Seriously ZH admins, it's time for a little natural selection out here. Useless content like this will end up turning ZH into yet another piece of shit MSM wannabe.

gwar5's picture

Silver = short squeeze

The manipulation has been to the downside for so long the market is discovering the market.  And, dollar devaluation is creating a new market for silver as currency.

Lapri's picture

It's gotta be the test by Tyler. If this guy is to become a regular feature at Zero Hedge, I'm outa here.

max2205's picture

Manipulation. I am shocked! After hours manipulation!? I am shocked!!

This has been going on since 2008

The Navigator's picture

I think Tyler was testing us to see if anyone was asleep at the wheel over the weekend.

Oil price is not going up, dollar is going down - Saudi & Kuwait have no problem with our QE2 ( see http://online.wsj.com/article/SB1000142405274870436670457559810120333704... ) ... Gee, I wonder why??

Silver is not going up, dollar is going down.

Pretty simple, see QE2 earlier in the week. It's not rocket science.

It was good for a laugh - but not nearly as much as WB7 posts.

liberal sodomy's picture

Every single instrument on earth trades with the eur as defined by harold and kumar's trading matrix spreadsheet.  Reality is suspended in New York's markets and it's all just one bing giant program that trades against short term open interest.

steve from virginia's picture

U kant tell manip by looking @ a chart.

Everyone in the USA knew that Hunts were hoarding silver. Hunts got murdered by the Fed (which dumped silver on the market) and the xchange bank(s) which held all the Hunts offsetting positions.

The Huntz had a corner and the exchange also had an offsetting corner. When the bubble burst the Hunts had only one entity to sell to. (& they weren't buyin'.)

What U see is bubbles a frothing in crude, silver, euros, gold, S&P, gum, old newspapers, porn and anything else that can be hoarded. It's the Mrkin way, no workee, free money! It's called Aminal spirits.

Danger danger will Robinson all the minibubbles are currency traps. Currency/liquidity traps are places where cash money goes to die! I know you are very clever and can get out of gold before the bottom drops out (and all those margin calls are made) but all the other gold holders are equally smart. The xit door shrinks to the size of a keyhole as liquidity evaporates @ the click of a mouse.

Markets right now are where the Fed is ready to destroy values, be Kareful!

TexDenim's picture

So if crude is manipulated up after hours, can't I make "easy money" by shorting futures before markets open the next day?

RoRoTrader's picture

Short or long, or long and short it is all easy money trading futures, especially when on the right side of price discovery.

Not picking on you Tex, but sometimes/more like often I wonder about the lowest common trading denominator among the readers/commentors........lots of IQ for social concience but not too confident about the depth in the trading sphere other than the obvious.

And, not that I pretend t be a raving fucking genius either. Far from it/very far, for disclaimer purposes........have survived a few hits and crashes allthough not in MadHedgeFundTrader or Tyler Durden league but noteworthy nonetheless, for what that is worth.......not to mention an honest opinion.

 

strannick's picture

What an idiotic article. He couldnt get it more wrong?

Big Banks goosing the market?? Would he be referring to the big banks with the humungous shorts?

Hunt Brothers taking delivery is 'anti-competitive'? What bizarre dynamic is this strange phrase supposed to refer to?

H says "The SEC needs to enforce position limits on these big banks with their exposure to the commodity as their presence is artificially creating another bubble market"

So the banks shorts are 'creating a bubble?' How about the bank shorts are artificially supreesing the price?

Then 'with price reacting strictly to money inflows rather than market fundamentals of supply and demand of the commodity in the marketplace."

Silver stockpiles are at all time lows. SLV holdings are double counted as silver supply. Central Banks have long ago unloaded their reserves. The silver market couldnt be more fundamentally flawed, or more primed for take off.

Well welcome to the manipulated farce that is the silver market. Obviously you are a new arrival.

 

 

 

gkm's picture

This guy must be short silver because he makes no sense in that regard.  I agree with other comments.  There are 300,000 new silver contracts short since 2008 at much lower prices.  Someone is in a lot of pain.

However, I had noticed the manipulation of the oil futures after market close in the last while.  I'm just not sure if it doesn't more relate to Asian markets than anything.  Time will tell.

Goldenballs's picture

More truth and better pictures in the Sunday Sport than this article.

gmrpeabody's picture

The reviews are brutal.

Goldenballs's picture

What a Joker.The real price is emerging from the paper manipulation.On Friday 1,007,341 oz,s of physical Silver were removed from the Comex valults because the customers don,t trust the physical silver being there.Just wait till the wheels come of the paper thats been sold 100/1 against an ounce of Silver.

LoneStarHog's picture

If this is not satire, I can recommend a good Proctologist to remove your head.

dcb's picture

I have noticed the great majority of market manipulation is after hours on the NYSE,

I am very surprised there is no investigation of the recent frequent stick saves and the volume some players are clearly moving. there has been a lot of banging the close (illegal). but it isn't going to be enforced

Al Gorerhythm's picture

Oh, I get it now! This is a test! Naughty Tyler.

TooBearish's picture

Who gives a shite if the market moves when the pit is open, electronic trading is open 23 hours a day, to more participants, than dinosaur "locals" in the pit - this article is very uniformed and inaccurate.

Apart from Reality's picture

Maybe Silver is just closely related to Netflix and Amazon stock.

oldmanagain's picture

At least the author didn't ask for us to subscribe.

Bagbalm's picture

Can just anyone post articles here whether they have a clue or not? Shouldn't they offer full disclosure that they are a bored teen stuck at home with mono or something?

anony's picture

Maybe, but perhaps the CFTC could hold off till my futures contracts hit about $40.00 before acting?? 

Gary Gensler, are you listening, or are you long, too?

beastie's picture

I'll assume this is satire. Right? I don't pay much attention to crude so if there is a joke in there I missed it. 

 

 

ToNYC's picture

 

Trust me, you missed it. The Law means little but misdirected and misallocated security if the Regulators are on the psychic payroll.

Rusty_Shackleford's picture

Yeah.  Those damn Hunt brothers.

Imagine,... buying something and then actually wanting to take delivery of it.

What crooks!

Thank God there's a law against that.

cfosnock's picture

If your a "little confused as to how this manipulation works in order to benefit those doing the manipulating," then read another article the author of this one is an clueless idiot. He is an idiot because he mentions the concentrated shorts but thinks that they are suddenly manipulating the price up while maintaining their shorts.

He is clueless because he mentions that "reacting strictly to money inflows rather than market fundamentals of supply and demand of the commodity in the marketplace." Only a clueless person would say this when demand is on fire 

Al Gorerhythm's picture

This is an satirical article, no?

unwashedmass's picture

 

is this guy completely clueless about what is happening in the silver market? JPM and HSBC are manipulating silver "upward"? As they are sitting on their mountain of underwater short contracts, yeah

as they are getting delivery demands now that they can not meet...

as they are getting served virtually daily now by various parties they've ripped off over the years...

as the CTFC can no longer pretend they don't know what is going on, and are now sitting awkwardly looking as if they are colluding .....which can only go on so long.......

before they are forced into instituting some sort of position limits -- and because of the worldwide scrutiny of this market, unable to play the usual game of exempting JPM and HSBC....

yeah, JPM and HSBC are working hard to take the price up.........

come on.

max2205's picture

Please no body could survive or stay short silver from 14 to 26

Bubble almost done next week

tmosley's picture

You can if your "delivery" mechanism is the issuance of unbacked paper.

But we'll see, won't we?

Saxxon's picture

+1 just front-run it if you have the sophistication to see what they are doing.

Bay of Pigs's picture

Yeah, I'm hoping this is a joke. If not, thanks for bringing the author up to speed.

EllisWyattOTC's picture

If you see a market being manipulated in a specific direction at a specific time of day and your a day trader quit bitching and front run it. PS the CFTC regulates commodites markets not the SEC and thank god for that!

Pairs Trader's picture

CFTC has no teeth!

There's an ongoing investigation on the silver market by the CFTC for two years with no action whatsoever.  The reason SEC needs to be involved is becasue these actions mentioned here are from banks, and SEC regulates banks, just like when they went after the Vampire Squid.    

Jadr's picture

I am a little confused as to how this manipulation works in order to benefit those doing the manipulating.  I understand how it would be much easier to manipulate the listed price when there is a thin level of volume.  What confuses me is that lets say this manipulation occurs causing a commodity to rise above its "fundamental" price because of the thin level of volume, would the price not simply return when the full complement of market participants return to the market?  I'm curious as to how these manipulators would be able to make manipulated prices stick.

Oracle of Kypseli's picture

Jadr

Nothing is what it seems.

With all the talk and hype of QEII and monetizing the debt, the trend is normally up except the short manipulative positions of the bullion banks.

Going against that up-trend however, is becoming extremely difficult for the bullion banks. Thus, they also jump on the up-trend and as the price gets hyper-extended, most traders will take profits. They then reverse course sharply and burn those with large long positions.

If you have physical, sit tight and buy a little at the time on dips. If you are long in futures or paper gold/silver, reduce (if you have time) as the reversal may come faster than you think.

The rule here is, the earlier you act on a reversal the better your profits, especially when the bullion banks act together. Conspiracy you cry! Yea! Try to prove it.

 

 

ToNYC's picture

 

To their point, it's all good that you are at least a little confused. Rinse. Repeat.

Sure, things happen for a reason, but not often enough for the reasons you think.

Jadr's picture

Thank you for your sage-like illumination of the situation.  Do you have a newsletter, I would love to hear more of your insights. 

kaiserhoff's picture

Good question.  The simplest and most common way to profit is by running the stops, creating artificial demand or supply.  Also, you can paint a picture for the chartists.  Most commodity traders rely on charts to predict price moves, even when they know better, and even as they bitch about the abuse and manipulation of the markets.  Go figure.