Can The New Silver Fix End The Ongoing Silver Price Manipulation?

The new silver fix is a fact since 17th August 2014. The silver fix has been a driver in setting the silver price in the last 117 years, but now a revised “fixing mechanism” with other “fixing members” is in place. Up until August 14th 2014, three institutions have been participating to the daily silver fix, i.e. Deutsche Bank AG, HSBC Bank USA N.A. and The Bank of Nova Scotia. In the new silver fix,  the participating members are HSBC, ScotiaMocatta and Mitsui.

Before looking into the question what to expect from the “new” silver fix, it is important to understand what the “old” silver fix has done to the price of silver. Commodity analyst Dimitri Speck has focused his research on discovering silver price manipulation related to the silver fix, more so than the Gold Fix. Based on his extended statistical analysis around intraday average price patterns, he was able to pinpoint when exactly the manipulation (or, intervention) took place, and he provided the world unbiased charts. The next paragraphs focus on his findings; they are based on Dimitri Speck his book “The Gold Cartel.”

The book “The Gold Cartel; Government Intervention in Gold, the Mega-Bubble in Paper and What this Means for your Future” is written by commodity analyst and precious metals expert Dimitri Speck. The book is available at Amazon. It is one of the few “must read” books on precious metals with important investment insights for serious investors.

The key in uncovering the silver price manipulation is to analyze price patterns in three distinct time frames:

  • Before 2010
  • Between 2010 and April 2011
  • After May 2011

In the period before 2010, the intraday average silver price chart clearly shows statistically significant anomalies. The first chart shows the intraday average price between August 1998 and 2011. The obvious observation is that a significant price break down has been appearing right at the silver fix, which is at 7AM EST (New York time). A second sharp decline is visible at 10AM EST, which is probably linked to the gold fixing, see below. The chart takes into account almost 13 years of data, it excludes every form of coincidence or randomness.

silver_price_chart_intraday_average_1998_2010

average intraday silver prices till 2010 show a visible intervention right at the timing of the “old” silver fix

Interestingly, the manipulation (or intervention) in silver is much more pronounced than the one in gold. The next chart shows a data set for a comparable period in time as the previous chart, but applied to gold.

gold_price_chart_intraday_average_1998_2010

average intraday gold prices till 2010 show a statistically less significant intervention right during the “old” gold fix

 

Dimitri Speck concludes in his book “The Gold Cartel”: “Contrary to the situation at 10AM EST, this decline cannot be ascribed to the high correlation with gold. The average intraday chart of silver shows that there are independent price interventions in silver that are not connected to gold.” Or, in plain simple words, silver price manipulation is obvious and much more outspoken than gold price manipulation.

What happened in the period 2010 – 2011? Between summer 2010 and April 2011, the price of silver surged from below $20 to $49 an ounce. It goes without saying that it was an historic rally. How was such a rally possible given the daily price break down which was discussed above? The answer is very simple: the interventions did not take place in that period of time. The next chart provides clear and unambiguous evidence of the trend change.

silver_price_chart_intraday_average_2010_2011

average intraday silver prices between 2010 and April 2011 do not show significant and recurring interventions anymore

 

“Coincidentally,” in September 2010, JP Morgan announced that they were in the process of winding down their proprietary trading operations. It is no secret that market observers are considering JP Morgan responsible for the manipulation of silver, because of their power to influence price setting, being the bank with the largest stake in the precious metals futures market in terms of derivatives positions.

One way or another, the interventions in the silver price “disappeared” between the summer of 2010 and April 2011. However, on 1 May 2011, the sharp rally suddenly stopped and a new phase with another intraday average price pattern became apparent. The price breakdowns from the period before 2010 were back at play.

silver_price_chart_intraday_average_2011_2012

average intraday silver prices after May 2011 show similar significant recurring interventions during the “old” silver fix

 

The comparison between the three periods of time are so obvious that everyone can observe them. It is the technique to use the intraday average prices, combined with the distinctive time periods, that are the key to uncover these anomalies.

From Dimitri Speck’s book “The Gold Cartel” page 149:

In September 2010, JP Morgan decided to wind down its proprietary trading operation. Market observers subsequently forecast a rally in the price of silver, as this trading division was alleged to have been responsible for silver price suppression. In the following months, silver rose strongly, whereby the price more than doubled in a short time. Concurrently, there are no traces in the average intraday chart hinting at interventions that specifically target silver. But then the price threatend to move above the level of $50 per ounce. This level represents not only an important round number level; it marks also the historical record price of 1980. Apparently an uncontrollable breakout was feared at that point. This was to be prevented, which is why it was decided to resume the price interventions. Thus, a sharp price decline occurred on 1 May 2011, in thin trading. This initiated the trend change, the silver price would subsequently fall for months. During this downward move, price declines at the time of the silver fixing are, once again, in evidence in the average intraday chart. These shocks attending the reference price are typical for price interventions. Their renewed appearance confirms that silver price suppression had resumed. The operation to keep silver from rising further had succeeded.”

What’s next?

The “old” silver fix has officially come to an end on August 14th 2014. The revised process shows to some extent similarities with the “old” process, although the participants and facilitators differ. First, the participating members are HSBC, ScotiaMocatta and Mitsui. The process is electronic and facilitated by Thomson Reuters, while the LBMA owns the intellectual property rights of the fix. On the other hand, market participants have been complaining lately that the preparations have been intransparant. Similarly, the rationale for chosing the facilitators have been intransparant. A review of the new process was conducted by an ex-Barclays director while Barclays has been found guilty of rigging the gold price, as reported by GoldCore.

With the new silver fix, the allegations of manipulation through the old process are inapplicable anymore. Does it mean that silver price manipulation has come to an end? Unfortunately not, according to precious metals expert Dimitri Speck. He explains to GoldSilverWorlds that the “new” fix has the potent to improve the transparancy on the long run, and avoid of conflicts of interest. However, the main manipulation is taking place in the gold and silver futures market. These manipulations appear at any time, just more frequently during the fixing, so that it remains visible in the statistics.

Dimitri Speck reiterates that “the fixing is influenced from outside”; as discussed before, the futures market is the main cause for manipulation of the silver price. Unfortunately, that issue cannot be solved by only “fixing the fix.” One has to end the manipulations in the futures market, which is, up until now, visibly not desired by the American authorities.

 

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