Feds’ look at silver prices: No collusion

Mark J. Lundeen says he’s not a believer in conspiracies, but the Minneapolis investor does admit to suspicions about the price of silver.

In 1994, the retired Navy man began buying up mining stocks, expecting silver prices to rise.

“It was just common sense . . . Economics 101,” Lundeen said in a telephone interview last week. “They’re using up more silver than they’re mining. You’d expect prices to rise, based on the laws of supply and demand.”

But silver prices have been stalled in the $4 to $6 range for most of the past decade, a source of frustration to silver producers and investors alike, and the genesis for countless Internet chat room discussions about possible manipulation in the market.

Lundeen joined more than 500 other small investors in writing to the U.S. Commodity Futures Trading Commission this year, asking for an investigation of their suspicions. Last month, the CFTC took the unusual step of posting a public reply.

In a nine-page letter, Commission Chairman Michael Gorham dismissed allegations that commodity traders were acting together to influence prices, a theory put forth by some of the investors. He also said there’s no indication that silver is trading at artificially low prices.

“As I read these letters, I was touched by the disappointment expressed by many small investors in the behavior of the silver market and the heartfelt feeling that lower-than-expected prices were the result of collusion by a handful of big players,” Gorham wrote.

But those allegations have no backing, he said.

The “collusion” theory runs something like this: World demand for silver is outpacing the amount of silver mined each year. That means that silver stockpiles are diminishing, and prices should be rising sharply. But the short-selling of large volumes of silver by commodity traders is depressing on silver prices. Some investors say it’s a 20-year conspiracy to keep prices low.

“The CFTC has closely monitored the silver market,” Gorham wrote in the letter. “. . . We found no evidence of manipulation, and those making the allegations have provided no evidence of manipulation.”

Even if the world’s stockpiles of silver are declining, as some data indicates, there’s no shortage of silver, Gorham said. And that, not market manipulation, is keeping the prices at current levels, he said.

The rumors are familiar in North Idaho, where domestic silver mines have struggled for years to stay open.

“It goes all the way back to the Hunt Brothers,” said Jack Lyman, executive director of the Idaho Mining Association. “You hear these kinds of whispers . . . I’ve never seen anything that documents any substance to it.”

In the late 1970s and early 1980s, a Texan named Nelson Hunt and his two brothers attempted to corner the world silver market. Silver briefly shot up to $50 per ounce in 1980, but Hunt’s scheme didn’t pan out, and prices fell rapidly.

The fears of market manipulation resurface from time to time.

In 1989, the chairman of the now-defunct Sunshine Mining Co. accused large silver users of a “complex orchestration” to keep silver prices low. His remarks led to a congressional hearing in Coeur d’Alene.

“We were trying to get the Silver Valley back into production,” recalled U.S. Sen. Larry Craig, R-Idaho, who scheduled the hearing. “Of course, the price was the dominant factor.”

Craig also promised to launch a congressional investigation into silver prices in 1989. Last week, he said he couldn’t recall the outcome. His staff members said no evidence of wrongdoing or manipulation ever emerged.

At shareholders’ urging, silver producer Hecla Mining Co. has launched its own investigations of silver prices.

“We have twice obtained outside special counsel . . . to investigate whether there were any illegalities in the commodity trading,” said Vicki Veltkamp, Hecla’s vice president of investor and public affairs. “We were unable to find any evidence that we could act on.”

The last investigation occurred about six months ago.

“We decided the best place to put our energy is mining the metals at low cost,” Veltkamp said. “That way the mines can make money even if the price of silver goes down.”

Rumors have a way of intensifying when metals prices are low, noted Laura Skaer, executive director of the Northwest Mining Association in Spokane. When gold slid below $300 per ounce between 1999 and 2002, the Gold Anti-Trust Action League and an accompanying Web site, gata.com, were born.

“There were really people who thought that Central Banks were manipulating the price of gold,” Skaer said. “Obviously, it was a controversial view within the industry.”

With gold prices back near $400 per ounce, Skaer said she hears fewer rumors. Mining companies are able to attract the investors to raise money for new mine development and exploration at that price.

“People are too busy working to worry about whether the price of gold is being manipulated,” Skaer said.

Lundeen, meanwhile, said he appreciates the CFTC’s letter, but isn’t entirely convinced by Gorham’s response. He’s written numerous letters to governors and congressmen over the years about silver prices. He said he’s never received a satisfactory explanation.

“He’s not looking very hard,” Lundeen said of Gorham. “He has all the information, but he’s putting the burden of proof in me. It’s incumbent of them to make sure the fair market is fair.”