JPMorgan cuts back on US silver futures

Jack Farchy in London and Gregory Meyer in New York
December 13, 2010
www.ft.com

JPMorgan has quietly reduced a large position in the US silver futures market which had been at the centre of a controversy about its impact on global prices for the precious metal.

The decision by JPMorgan was an attempt to deflect public criticism of the bank's dealings in silver, a person familiar with the matter said. The person added that the bank's position in silver would from now on be "materially smaller" than in the past.

A group of small precious metals investors has alleged that large short positions – or bets on lower prices – in silver futures held by several banks, including JPMorgan, are keeping prices artificially low.

The US regulator, the Commodity Futures Trading Commission, announced in September 2008 that it was investigating complaints of misconduct in the silver market, although it did not name specific entities.

However, JPMorgan said in a statement: "It is absolutely incorrect to say or imply that the Nymex, CFTC or any other exchange or regulator has instructed or asked us to reduce our position." The bank declined to comment on whether it had reduced its position in the silver market.

The price of silver has risen more than 70 per cent since mid-August to hit a 30-year high of $30.68 a troy ounce last week on the back of a surge in investor buying and a rebound in industrial silver consumption.

In two previous reviews of the silver market, the CFTC has dismissed claims of manipulation. Most analysts say there is little reason to believe the price of silver is being systematically manipulated.

But, Bart Chilton, a CFTC commissioner, said in October that he believed there had been "fraudulent efforts" to "deviously control" the silver price. He did not name any party.

Publicly available data on individual traders' positions are sketchy. In a speech last Wednesday, Mr. Chilton said that "earlier this year, one trader held more than 40 per cent of the silver market". He declined to identify the trader.

The CFTC's Bank Participation Report shows that one or more US banks held a gross short silver futures position equal to 19.1 per cent of the total number of outstanding contracts in early December. In January the share was 30.2 per cent.

The CFTC only reports data for the US silver futures market, a small corner of the global derivatives market for the precious metal, which is centered in London and largely traded via private over-the-counter deals. The data also do not cover transactions in the physical market.

Analysts and traders said that JPMorgan's large short positions on New York's Comex exchange, a division of Nymex, were hedges for the bank's long positions in physical silver and London's over-the-counter market.

JPMorgan has invested nearly $3bn over the past two years in its commodities business led by Blythe Masters.

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