LONDON (Commodity Online): Silver has been the most volatile commodity in the last few months, driving investors to bet on the white metal to lose and gain money as speculators played their best in trading.
After a record surge in prices, silver crashed last month, giving heartburns to thousands of investors who had put long term bet on the surging white metal.
Why did silver price crash from around $50 to $32 an ounce in May?
Leading bullion analysts in the world have different reasons on the silver price crash. One of the fundamental analysis on the fall in the white metal prices has come from Eric Sprott, CEO of Sprott Asset Management, who has been bullish on owning both gold and silver.
In an interview to Silver Investing News, Sprott has said that manipulation was the name of the game in the recent crash in silver prices.
According to Sprott, several large financial institutions joined hands to push down silver price from around $50 to $32.
He said in the interview: “In my heart of hearts I believe it was a manipulation. There was no market, it was a setup. They’ve just pushed it down. It’s ridiculous.”
But who drove down the silver prices? Who were the manipulators?
Sprott says that those who manipulated the recent drop in silver were large financial institutions unsatisfied with their current volume of holdings.
“We all suspect they’re the same guys that are mentioned in the 2008 lawsuits against the two major players in the silver market,” he said. “The guys who were short who were getting killed were losing huge amounts of money, so it was a perfect time to do something.”
According to Silver Investing News, Sprott is referring to two separate lawsuits filed by trader Peter Laskaris in federal court against JP Morgan Chase & Co. and HSBC.
In the law suit, Laskaris has claimed that the institutions held large positions in silver futures and silver options, then made large trades at key times, made large “spoof” orders that were placed and then canceled after the order has influenced the price, and communicated their trades to each other.
In spite of his speculations of manipulation, it would be an understatement to say that Sprott is bullish on silver. Around the time of silver peak, financial blogger Kid Dynamite and later the Globe and Mail reported that Sprott had sold 1.6 million trust units of Sprott’s Physical Silver Trust. Sprott later explained that he was in fact only selling so he could buy back in without the premium.
“Our position in silver did not change,” said Sprott. “If I can buy the silver back at a 20 percent discount from the value, then I can buy back 20 percent more ounces of silver in the physical market. One hundred percent of the proceeds of those transactions went either in the physical silver or into silver equities.”
Sprott also says that the force of quantitative easing is pushing the price of silver. The second round of quantitative easing is drawing to a close as the QE2 trade was “officially over” in late March. Many analysts, including Sprott, are prepared for a QE3 around the corner, and that this would once again drive silver prices to record highs.
“A lot of that QE1 and QE2 are giving a tailwind to gold and silver. If you want to tell me there’s going to be a QE3, I’m going to tell you silver will hit $50 before we even know it,” said Sprott. “I’ve always publicly stated that it will trade at a range based on the gold price of 1/16 of the gold price, that’s what I think it historically was always at and I think it will go back there. The charts tell you that”
