My reasoning follows:
In mid-August, I wrote that the Federal Reserve’s weekly report of the money supply showed it rising by its greatest percentage in history except for two other weeks (those being the week including Sept. 11, 2001, and the week in 2008 when Lehman Brothers failed). I pointed out that this increase was almost certainly in anticipation of some looming major financial crisis.
There were certainly several impending problems for which the jump in money supply could be used for crisis management. The U.S. debt ceiling limitation, the effect of the end of quantitative easing in the United States and the mounting European debt crisis were all reasons for creating a cash hoard reserve. It is almost certain that some of this increased money supply has been used in the past month to prop up American stock markets and hold down gold and silver prices.
However, a new crisis came to the forefront last week, receiving little coverage by the American mainstream media. On Monday, Sept. 12, a consolidated class action complaint was filed against JPMorgan Chase alleging manipulation of the prices of silver futures and options contracts traded on the COMEX on June 26, 2007, and between March 17, 2008, and Oct. 27, 2010, in violation of the Sherman Act and Commodity Exchange Act. Details of this lawsuit generally did not reach the public and then only to a limited extent, toward the end of last week.
This lawsuit is a consolidation of separate lawsuits filed against JPMorgan Chase and HSBC beginning on Oct. 27, 2010. In the suit filed last week, five law firms are listed as the Interim Plaintiff’s Steering Committee. At least two of the law firms have special expertise in such suits, having between them won the largest settlements in the history of the Commodity Exchange Act, federal and state antitrust laws and the Investment Company Act.
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Last week’s lawsuit dropped HSBC from the list of defendants, noting that the bank had entered into a “tolling agreement” with the plaintiffs. The consolidated filing runs for more than 100 pages. You can read it here.
Among the particular allegations in the lawsuit are:
• JPMorgan Chase had a large short position in the silver market that resulted in a disproportionately large and influential position after the acquisition of the short position held by Bear Stearns at the time of that company’s failure in 2008.
• JPMorgan Chase used “fake” and “spoof” trades to suppress prices, especially in advance of COMEX contract expiration dates.
• JPMorgan Chase reduced its short position following the March 25, 2010, Commodity Futures Trading Commission hearing in which complaints of gold and silver market manipulation were aired.
• JPMorgan Chase regularly engaged in uneconomic trading activities for the purpose of manipulating the silver price.
• JPMorgan Chase derived substantial profits from trading options because of its activities that suppressed silver prices.
• The Commodity Futures Trading Commission had received a detailed complaint about JPMorgan’s silver market manipulation. In one instance, the CFTC had received advance notice of a specific future time that JPMorgan would be suppressing silver prices, which occurred at the exact time in the precise manner that the whistle blower described.
It has to be emphasized that these and other points are currently only allegations against JPMorgan Chase, not legally established facts. However the balance of the lawsuit extensively details the names of participants, specific actions and dates (in some cases down to a specific second) of various market manipulations. In my lay judgment, JPMorgan Chase at a minimum will have its hands full with a huge body of evidence to overcome.
I do not expect this lawsuit to ever come to trial. Instead, I expect that rather than risk being found guilty of violating the law against manipulating markets, JPMorgan Chase will come to an agreement to pay possibly billions of dollars in damages without admitting its guilt.
Over the coming months, the filing of this consolidated lawsuit is almost certain to convince a greater number of professional investors and the general public that gold and silver prices have been suppressed for a number of years. Further, more deep-pocket investors will comprehend just how little physical silver inventories are available to fulfill the huge number of delivery contract commitments.
As this awareness increases, it is reasonable to expect a further increase in demand for physical precious metals and an almost certain sharp rise in prices from current levels. It is entirely possible that there could be a widespread default in the trading of paper contracts for silver. At the minimum, I anticipate that silver prices will be 25-50 percent higher by the end of this year. There is some potential that the price could even double.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at CoinUpdate (http://www.coinupdate.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).