This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

It occurs very rarely, but every once in a while in the investment world you do get a fat pitch, right down the middle, that has homerun written all over it. We have just been thrown that pitch with silver. Now it’s up to each of us whether to swing for the fences or hesitate and miss this chance. We are now being presented with a rare alignment of the best of both the long-term and short-term forces in silver, creating what is, in my opinion, a phenomenal low risk and high return opportunity.

The long-term fundamentals of any commodity usually don’t change drastically over the short term. That’s good news, because the silver fundamentals are spectacular. Strong worldwide demand continues with no big surge in supply. We have old uses for silver being replaced with new uses. We have old geographic areas of demand (US, Europe, Japan) slowing perhaps, but new areas (India and China) exploding. There’s restraints on mineral production, from oil to copper to zinc to gold. The world can’t dramatically increase production of these commodities, and it’s no different with silver.

Actually, the long-term fundamentals have changed for the better in silver. That’s because of the introduction of the silver ETF (SLV). For the first time in history, institutional money can buy real silver. Overnight, there is a new large buyer of silver that is bigger than Kodak, Dupont or Fuji. In fact, the ETF bought more silver in one month than any of these buyers bought in one year. I think very few people comprehend this.

The big change, of course, has been in the short term. Without dwelling on my recent efforts to get the regulators to rein in the big concentrated shorts, these crooks did exactly what I feared they would do – flushed out everyone holding long silver positions on margin that was possible. Let me assure you that this was their intent and it worked. The wipeout of the silver margin players was epic.

As traumatic and painful as the silver market has been for the leveraged players, it has created a windfall opportunity for real silver buyers. You are being presented with a one-third off sale on what I believe is the best investment in the world. More risk than I thought was possible has been removed from the market. The COTs are better than they have been in many years. It is almost like being presented with 4-dollar silver again. So many leveraged players have been taken out of this market, that it is hard for me to imagine there being many left to sell. When that occurs, as it must at some point, the market can’t go any lower.

Not too long ago, when we were stuck in the 4 to 5 dollar range, many questioned how the fundamentals could be spectacular when the price just sat there. Subsequently, the price doubled and tripled. Now many of those same skeptics are pronouncing the silver move (which they never foresaw) as finished, confirmed by the sharp sell-off. Everything that I see tells me we are at the bottom and it’s only a question of how high and how soon.

I never expected that the price would drop as low as it has. Of course, the markets don’t pay any attention to my short-term expectations. But expectations and short-term predictions are one thing and analysis is another. After the price drop, it is clear why we went down – in order for the big shorts to liquidate as many leveraged longs as possible. Having accomplished that, the decks are now cleared for much higher prices.

The real risk at this point is in failing to take advantage of a rare opportunity, precisely because such opportunities come so seldom. This mother of all clean-outs/sell-offs in silver is every investor’s fat pitch, right down the middle. This is not the time to be tentative; this is the time to knock it out of the park.

(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

The just released COT, for positions held as of June 6, 2006, shocked and dismayed me. Not only did it confirm my contention that the largest short traders on the COMEX continued (and actually increased) their dominance over long traders by excessive concentration, the new COT contained data that was so disturbing that it raised the possibility of a looming default in COMEX silver. At a minimum, the new data fully explains the recent sharp sell-offs in silver, and strengthens my allegations of a downward price manipulation.

What makes the new data so disturbing is that it may indicate that a couple, or even just one, of the very largest short traders may have become isolated from the rest of the dealer short community and has turned into a rogue trader seeking to intentionally drive prices down to reduce economic loss or to acquire silver on the cheap in other markets. While the dealer community, as a whole, aggressively bought back and covered short positions on the price decline in silver (as expected), the very largest trader(s) actually increased short positions on the decline. This is unprecedented.

And for those confused as to why silver prices have been so weak, the COT report should provide an answer. The largest trader(s) have been selling whenever the market is most illiquid (on the electronic Access market on off-hours and regular session openings and closings) to cause the biggest price declines. It is predatory pricing at its most extreme, designed to cause liquidation from leveraged long position holders. Unfortunately, it has had the intended effect, as leveraged longs have been flushed from the market. Needless to say, this violates commodity law. The new short selling by the largest trader, on severe price declines, provides prima facie evidence of manipulation.

Of the 187 million ounces held short by the four or less traders, I am now convinced, from studying the data, that anywhere from 100 to 125 million is held by just one trader. It is looking more likely that this could be a rogue trader, selling more in order to buy time, although he’s probably already in too deep. The other dealers are realizing this and they are moving to buy back their short positions and going long, leaving new selling solely to the big short. Recent history is replete with examples of this type of behavior. For instance, rogue traders from the Peoples Republic of China have emerged in both oil and copper in the past couple of years. Why not silver? While I certainly wouldn’t be surprised if it turns out to be a rogue trader from the PROC behind the concentrated silver short selling, the who is not important. What is most important to the market is that rogue traders eventually default, and the default causes chaos.

This default potential is the most bullish development possible for the price of silver and those holding real silver positions. It introduces a bullish factor beyond description, as, and when, this concentrated short position is resolved.

Perhaps one of life’s greatest pleasures and passages occurs when children teach their parents to look at something in a different perspective. I experienced this event, just before Father’s Day no less, when my son Ross shared with me a thought of his.

He said, "Dad, what would you do if a neighbor had a heart attack?" I told him I’d call 911 and attend to the neighbor as best I could until the EMS people arrived. He asked the same about a fire breaking out, or if I observed someone breaking into a home nearby. With slight variations, I answered these emergencies also involved calling 911. Knowing that I have labeled the recent developments in silver as an emergency and a crime in progress, he then asked me, "Why isn’t there a 911 you can call in that case?"

We continued talking and it got me to thinking. One of the hallmarks of living in a civilized and lawful society is our assumption that when one dials 911 for a medical emergency, the EMS is going to arrive soon. Likewise for a fire or police emergency. We collectively pay significant taxes to maintain this safety infrastructure, and dedicated men and women risk their lives daily to serve and protect us. If a 911 call is not responded to, there is, and should be, hell to pay by those responsible. If a false 911 call is made, the caller is, and should be, prosecuted in some way for abusing the system.

Taken further, we have institutionalized our response to all known threats to the general safety and well being of our citizens. That is why we maintain our armed forces and government institutions to deal with everything from terrorists to natural disasters. Of course, we can find fault and take corrective measures when these institutions fail to measure up in execution, but certainly not to the point of advocating a complete dismantling of the Air Force, or FEMA, or the FBI, or the local Fire Department.

The Commodity Futures Trading Commission (CFTC) is the police and fire department of the commodity futures market. They have an annual budget of over $100 million and are staffed with well over 500 employees. If you click on "about" on their web site (www.cftc.gov) the first thing you will read is the following –

"The mission of the Commodity Futures Trading Commission (CFTC) is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets."

Those are their words, not mine. I did not give them this mission, the US Congress did. I did not swear an oath to uphold the law and the Constitution, the CFTC did. I have not been charged with protecting the investing public from fraud, manipulation and abusive trading practices. The CFTC has been charged with, and has willfully accepted, that responsibility. Or at least, that is what they publicly proclaim.

Imagine that your city or county just commissioned a state of the art fire or police department, costing tens of millions of dollars annually, and staffed by hundreds of public servants. But instead of protecting and serving the citizens, it quickly became apparent that they never responded to fire or police emergencies. The 911 calls were received and recorded, just never acted upon. Buildings burned down and victims of crime were ignored. How long would that be tolerated?

When you send a public warning to the chairman of the CFTC alleging a manipulation in a market, citing their own public data, that is their equivalent of a 911 call. Since the CFTC exists for this very purpose, it is reasonable to expect one of two things, namely, for them to act on the call or for them to chastise or punish you for making a false public allegation.

The emergency phase in the silver market has now probably come and gone. The concentrated shorts appear to have flushed all margined long traders from the market that were possible to be liquidated. The building has burned down. Still no response from the CFTC. Unfortunately, this is standard procedure for the CFTC. To my knowledge, in the history of the CFTC, they have never interrupted a manipulation in progress. Never put out a fire, never stopped a crime in progress.

I am coming to the opinion that the CFTC, just like a fire department that won’t respond to fire alarms, is doing more public harm than good by virtue of its very existence. It may be fostering the false security that someone is there protecting and that laws matter, when the opposite is true. By its inability or unwillingness to move against the manipulators, it is protecting them. If it were openly acknowledged that the CFTC was not there to protect the public, and was dismantled, the markets would adjust to that. At least we could save $100 million a year in taxes.

(If you would like to write or e-mail the CFTC, go to www.investmentrarities.com under Ted Butler’s Commentary for the address.)

Since ancient times, people have known of the germ-fighting qualities of silver. Dead bodies were wrapped in silver cloth to ward off bad odors. Milk stored in silver vessels didn’t spoil as quickly. Now, silver is showing up as a bacteria- and odor-fighting material in a range of contemporary consumer products, from sports socks to washing machines.

Specialty retailer Sharper Image recently introduced a line of plastic food containers infused with silver nanoparticles that are intended to keep food fresher. In March, South Korea’s Samsung Electronics launched a new washer in the U.S. that uses silver ions to sanitize laundry. Plank, a small Boston company that sells Yoga accessories, recently introduced Cor, a soap with silver as the main active ingredient. The company says its supplier is also developing silver-imbued shampoo and toothpaste.

Silver, in the form of a metal or as dissolved ions, fights microorganisms by interfering with processes such as how they breathe and reproduce. Tests show that silver ions kill microorganisms ranging from harmful strains of e. coli that cause food-borne diseases to the staphylococcus bacteria responsible for serious infections.

Antimicrobial silver is also increasingly popular in athletic and outdoor clothing. Many apparel makers, including Adidas and Polartec, have licensed a silver-coated nylon fiber that promotes thermal regulation and is supposed to keep athletes comfortable in different temperatures by taking advantage of silver’s natural energy conduction qualities.

On January 21, 1980, silver’s London fix price was $49.45. It has never been higher. From there, it began a plunge that would take it to a low of $3.55 at the end of February 1993.

That was a plunge of 92.8% in just over 13 years.

You really can’t say that the bull market started back then in 1993, but at least it never fell lower. For the next nearly nine years, it lay as if near dead from that huge fall and scarcely moved. In November of 2001, silver touched $4.07. We can say that here began the current bull market in silver.

Keeping in mind that silver’s moves are much more volatile than gold’s, I think sooner or later we will see silver approach the $25-$27 level. If it breaks above this, then the next target would be the old highs of 1980.

But $50 in 1980 is not the same as $50 in 2006. This is a way of saying that, even if silver reaches its old high of around $50, it would still be very much lower in real terms than it was at the peak. Based on the inflation of the dollar as of now, it would have to be about $130 to equal what it was at the highs. I think that $80 is a conservative target for this bull market, not even considering the difference in real dollars, discounting for inflation.

Throughout the last several centuries, a ratio of silver’s value to gold’s has always seemed to come back to the 16-to-1 area, where about 16 ounces of silver equals one gold ounce. Granted, there have been extremes in the market at certain times. At one extreme was the London market ratio of a mere 6-to-1 in the first quarter of 1551. The reason was that newly discovered Spanish gold was pouring into Europe. While both gold and silver were discovered in the New World, the Spanish naturally focused on gold, it being more valuable. But so much gold came, relative to silver, that silver became more valuable.

On the afternoon of February 28, 1991, the ratio reached 100.35-to-1. At that rate, silver was amazingly lowly valued against gold. This extreme proved equally untenable, and silver began to gain on gold in the next few years. On February 28, 1998, exactly six years later, the ratio stood at 41-to-1. But the normal ratio for most of the past few centuries has been in the range of 14- to 16-to-1. And right now, the ratio is 48-to-1.

Silver is most certainly in favor. And it should have its very own slot in your portfolio.

One of the largest silver and gold margin companies in California is rumored to have had 1300 margin calls in one day recently. A number of their clients had to be sold out, thus losing everything. The losses for all clients were staggering. Some of these people will never recover financially in their lifetime. Most will never buy silver again. It’s estimated that these margin calls will cause that company to lose two-thirds of these clients. The bitterness and frustration over large losses could harm that company for years.

How much better off people are to follow our advice and buy physical metal for the long term. They may have paid a bit more, but they can sleep at night. They weren’t wiped out financially, and they still hold their silver. We have seen all the ways that people can lose money in gold and silver, including crooked dealers, inexperienced dealers, bankrupt dealers, price gouging dealers, rare coin swindlers, and margin sellers. Most coin dealers in America will go broke within ten years. Many of the names you hear that are operating today in the coin business will be gone. There will be problems with silver storage. In some cases it won’t be there at all, and in others the storage outfit will have failed. That’s why you should deal with us. We give the best advice, sell the best products, ship on time, provide the best information, have safe and certain storage, and do the best job of looking out for our customers. We buy back what we sell and pay on time. We have great people with high integrity, a great work ethic and pride in what they do.

Silver is unique. No other element combines strength with a softness that allows it to be formed and stretched. Nothing conducts electricity as well or is malleable, fatigue resistant or corrosion resistant. Nothing else has such high-tensile strength, is wear resistant, has such a long functional life or is as light sensitive. Silver endures extreme temperatures, conducts heat, reflects light, provides catalytic action, is bactericidal and reduces friction. It alloys and has chemical stability. Due to its exceptional properties and

reasonable price, there is no substitute for silver.

Add some bags of circulated Kennedy Half Dollars and Franklin Half Dollars. These old half dollars were coin-of-the-realm in the U.S. up until 1964. Each bag contains 2,000 coins and 715 ounces of silver. These half dollars have been heavily melted and these are the survivors. You should own these great coins that are rich in silver. Each bag weighs 55 pounds and is the size of a bowling ball. We ship a bag in two separate plastic buckets weighing 28 pounds each. If and when you sell it back to us, you can use the same plastic container to ship it back.

If you want to store your silver, 1,000-ounce silver bars are a good way to go. These large 80-pound bars are stored at HSBC, one of the world’s largest banking groups. They stand behind the security of the bars. You get a storage agreement in your name and the serial number of your bar. Nobody can match this storage arrangement. (Other storage programs are in the dealer’s name and don’t give you serial numbers.) Call us and buy some 1,000-ounce bars. 1-800-328-1860 They’re a great way to own silver with the safest possible storage program. We also have 100-ounce bars available for storage or for shipping to you.

Sincerely,

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