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Financial Times: CFTC puts spotlight on silver trades

Section: Daily Dispatches

By Gregory Meyer and Jack Farchy
Financial Times, London
Tuesday, October 26, 2010

A senior US commodities regulator has alleged fraud in silver trading more than two years after investigators began a probe into the market.

Bart Chilton, commissioner at the Commodity Futures Trading Commission, said "members of the public" and "publicly available documents" convinced him the silver markets are tainted by violations of federal commodities law.

"I do believe that there have been repeated attempts to influence prices in the silver markets," Mr Chilton said on Tuesday at a meeting in Washington. "There have been fraudulent efforts to persuade and what I consider deviously control that price."

The CFTC, the US watchdog, in September 2008 disclosed that it was investigating misconduct in the silver market. The announcement followed complaints by small investors that silver prices were artificially suppressed.

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Mr Chilton, a Democrat appointed in 2007, has emerged as an outspoken advocate of limiting traders' commodity holdings. In his remarks he declined to identify traders engaged in silver shenanigans and did not cite evidence gathered by CFTC investigators. Through an aide, he declined an interview request.

Silver critics suspect that a handful of large traders control a disproportionate "short," or selling, position in futures. On Comex, a New York metals exchange, a third of the net short position in silver futures was held by four or fewer traders, according to CFTC data last week. Dozens of investors have written to the CFTC in recent weeks seeking strict limits on trader holdings in silver futures.

But bankers say that Comex data offer an incomplete view of the market whose centre is in London. Banks often use short futures positions to hedge their long physical positions. Two previous CFTC inquiries found no evidence of wrongdoing in silver markets. The CFTC declined to comment on the status of the latest investigation.

Edel Tully, precious metals strategist at UBS in London, said: "Based on the breadcrumbs that Bart Chilton has given us today, it's hard to see what impact it could have on the market -- unless the CFTC says the manipulation is ongoing, which we don't see evidence of."

Silver prices have meanwhile risen to levels not seen since the Hunt brothers, the billionaire oil barons, cornered the market in the late 1970s, sending prices to a peak of $50 an ounce in 1980. The gray metal on Tuesday rose 1.1 per cent to $23.84. It is up 42 per cent for the year so far.

Mr Chilton's comments came as the CFTC mooted new rules to expand its authority to crack down on fraud, manipulation, and disruptive trading.

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