Is Silver Wheaton Corp. (USA) (SLW) Being Manipulated?

The intent element is also extremely challenging to prove, because you must show that the motivation for the behavior was the manipulation of the market. If JPMorgan initiated short positions that it would have initiated anyway, or as a part of some other trading motivation, the company lacks the intent to manipulate prices. Essentially, it requires an insider to come forward and say that he or she was a part of an effort to drive prices away from their natural equilibrium to generate profits. This is not an easy feat and not one that was accomplished in this case.

Here is where the logic and common sense come into play. You can argue — given that JPMorgan owns roughly 25% of the short positions in existence, according to some reports — that it should be obvious that the bank wants to keep prices low. The other, equally plausible, explanation is that the bank inherited a huge short position from Bear Stearns and is now trying to manage that position by trading around its core opinion on the direction of the market; in other words, the size of the position it is stuck with necessitates large trades to unwind the original position carefully.

The silver market
Whether you choose to believe that JPMorgan is actively engaged in silver manipulation, or you agree with the court, as I do, that nothing untoward has happened, no case is likely to proceed in the near term. In broader terms, silver looks well positioned moving forward. Industrial uses continue to grow faster than supply, and no satisfactory replacement exists. Furthermore, the theoretically improving health of the economy is not as certain as some would prefer us to believe.

As long as the Federal Reserve continues on its current course of quantitative easing, inflation remains a serious concern. Against the backdrop of the continuing need for agreement out of Washington, it remains uncertain when things will be stable again. All of this favors an increase in silver prices.

My favorite play in silver remains Silver Wheaton Corp. (USA) (NYSE:SLW), largely as a result of its model that allows it to leverage the upside in silver prices without being as acutely affected by increasing production costs. The silver streaming model of buying the production of other producers at a fixed, predetermined price gives the company an edge over pure miners such as First Majestic Silver Corp (NYSE:AG) and Pan American Silver Corp. (USA) (NASDAQ:PAAS). Despite a record quarter of production, ballooning costs have hurt Pan American; the stock has not traded as one would hope for a company operating as strongly as it is under current conditions.

Ultimately, I don’t believe the price is being manipulated. Silver continues to look strong at current levels and deserves a spot in your portfolio. Either way, if you’re with the skeptics, remaining on the sidelines appears to be the only option.

The article Is Silver Being Manipulated? originally appeared on and is written by Doug Ehrman.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase (NYSE:JPM).

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