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Saturday, December 11, 2010

Silver... justified price rise, or yet another manipulation

Argument supporting price manipulation


Another class-action silver manipulation suit hits Morgan, HSBC


Source : Gold Anti - Trust Action Committee - Daily Dispatches


As Jimmy Durante used to say, "Everybody wants to get into the act." And why not? The deepest of deep pockets are here.


Press Release via Marketwire Thursday, November 4, 2010


Kaplan Fox Sues JP Morgan and HSBC on Behalf of Investors for Silver Futures and Options Contract Losses Caused by Market Manipulation


http://www.marketwire.com/press-release/Kaplan-Fox-Sues-JP-Morgan-HSBC-on-Behalf-Investors-Silver-Futures-Options-Contract-Losses-1347390.htm


NEW YORK -- On November 2, 2010, Kaplan Fox & Kilsheimer LLP (www.kaplanfox.com), a leading plaintiffs' firm, filed a class-action complaint in the U.S. District Court for the Southern District of New York on behalf of an individual investor against JP Morgan Chase and HSBC in connection with their alleged conspiracy and manipulation of the market for silver futures and options contracts traded on COMEX.


To view a copy of the complaint:


http://www.kaplanfox.com/templates/kaplanfox/images/content/pdfs/silver%20futures%20class%20action%20complaint.pdf


The complaint alleges that around June 2008, when JP Morgan acquired Bear Stearns, including Bear Stearns' short positions in silver futures, JP Morgan and HSBC commenced a conspiracy to manipulate, and did manipulate, the market for silver futures and options contracts on COMEX. Specifically, the complaint alleges that around this time, JP Morgan and HSBC, pursuant to their conspiracy, acquired massive short positions on silver futures contracts in an effort to artificially depress the price of the silver futures market. The defendants realized substantial illegal profits in connection with their scheme, while investors who had no knowledge of the scheme, lost substantial amounts of money because of the defendants' conduct.


The complaint further alleges that the defendants' illegal scheme continued until around March 2010, when a metals trader based in London, publicly exposed the scheme. This trader has reported the scheme to the Commodity Futures Trading Commission ("CFTC"), and both the CFTC and the Antitrust Division of the United States Department of Justice are investigating the alleged conspiratorial and manipulative activities of the defendants.


If you have any information concerning any of the defendants' conduct, or wish to learn more about the litigation, please contact Kaplan Fox attorneys Robert N. Kaplan or Jason A. Zweig at 800-290-1952.


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Argument justifying price rise


At the beginning of 2010 there were some factors which were bearish for silver. With widespread use of digital photography demand for silver in photography industry was diminishing at pace around 10% a year and even 16% in 2008. Yet this decline in demand can be easily offset by demand from other industries like medicine, where silver used because of its antibacterial qualities. And while new technologies are replacing the old, silver is finding new applications, laptops and cell phones being the examples of modern technologies requiring silver.

Demand from industry rise as economy rebounds. Will supply satisfy this demand? It is not likely. It is true that output in China Russia, Mexico, Peru, Australia, Turkey and Bolivia is growing. But about 80% of silver are mined as a byproduct of other base metals and there are only a few pure silver mines left, with their reserves depleting. And we should remember that most silver is not recycled, like gold, as it has much lower value. Therefore silver is gone forever after it is used.


Demand for silver is rising while stockpiles are dwindling. Analysts had initially estimated silver prices in 2010 in the range from $25 to $27.50 by the year end. Current prices are around just below $30. But as silver is greatly undervalued compared to gold, we can expect even greater increase in price of the precious metal in the future years as trader turn their attention to this less expensive but quite profitable commodity.


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Though the argument can be equally strong on both fronts, which turns out to be true is a matter of time or just simply how soon financial regulators find out the truth behind the scenes. For now as we are left on our own to take a side and plan our portfolios, our advice to clients would be to just stay out of this game, lest we all get caught cheering for the losing side.


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