Ananthan Thangavel of Lakshmi Capital is long silver futures and call options for his clients, and will add to his silver positions on any pullback. He knows there are huge short positions in silver; CFTC records show that 44.1% of the gross short position in silver is held by the 4 largest traders. And he reports in a comment on the silver market on Lakshmi's website ("A Twist on the Silver Market") that, "Some traders I have spoken with are targeting the 40-50 level within 4 months." A chart of silver prices shows that silver in recent weeks has outshone the rise in gold prices by jumping 50 percent from around $18 to nearly $30 and then backed off to $27.16 Saturday. This extraordinary increase in the price of silver suggests that short covering might explain part of the gain.
Nevertheless, bullishness on silver is also based on the feeling that "the world's silver supply and mining production is not enough to satisfy the increasing industrial demand as well as vastly increasing investment demand, Thangavel wrote me in an email Nov. 10. Only 116.1 million ounces of silver out of 2009 production of 709 million ounces were available to satisfy investment demand. "This huge shortfall indicates that the outstanding short position cannot be solely on behalf of producers, because there is a far larger outstanding position that could possibly be hoped to be mined this year, " Thanagvel wrote today.
"For months and in some cases years, conspiracy theorists and market pundits have been speculating about the manipulation of the silver market by large banks, including JP Morgan and HSBC," Thangavel wrote today. "Recently, these theories have been given significant weight as CFTC Commissioner Bart Chilton stated his belief that the silver market was being manipulated." Chilton stated that "there have been fraudulent efforts to persuade and deviously control" prices in the silver market, which "should be prosecuted."
On October 26, Chilton stated at a CFTC meeting that "I believe violations to the Commodity Exchange Act have taken place in silver markets and that any such violation of the law in this regard should be prosecuted." A JPM Chase spokeswoman refused to comment at all on rumors in the marketplace.
As a result of Chilton's public statement, several individual investors brought lawsuits against JP Morgan and HSBC, claiming they lost money on positions they took in silver futures on the Comex. One such suit claims that in August, 2008 JP Morgan and HSBC controlled over 85 percent of the commercial net short position in COMEX silver futures, and that this represented a short interest of 169 million troy ounces of silver, equal to about 25 percent of annual world mine production.
The suit charges alleges that beginning in March, 2010 "the net short positions of silver futures held by commercial banks, of which Defendants comprise the vast majority, have been reduced by more than 30% ." And the suit alleges that silver's dramatic gains to its highest level in 30 years were caused by the buying back of silver futures contracts.