TED BUTLER COMMENTARY

July 3, 2007

SELL OFFS MAKE YOU THINK

By Israel Friedman

(Izzy Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades. He has written articles for us in the past. Investment Rarities does not necessarily endorse these views.)

My good friend, Mr. Butler, thought it was a good time for me to write something. Since we talk to each other about silver so much, I am happy to have the honor of having my thoughts recorded, and I hope I don’t steer anyone wrong with my opinions.

If you study silver like I do every day, the recent price drop affects you in different ways. It makes you afraid of losing money, or angry if you believe in manipulation. For some people, it makes them happy they are in a position to buy more. A sudden sell off like this last one also makes you think and re-evaluate. I wonder if the original reasons I bought silver are still okay. That is good because things can change. In fact, I think things have changed in silver. Believe it or not, I think the silver story has gotten better than before.

I agree with what Mr. Butler writes about the manipulation. I think the recent sell-off proves it more. Nothing changed in silver to account for such a sharp decline. It’s only the questionable dealings on the COMEX. But, Mr. Butler writes about the manipulation and I want to talk about something else. I want to talk about the opportunity of a lifetime that silver represents. When I look at the facts in silver, I reach a conclusion on price that many would consider ridiculous. Mr. Butler told me not to print the prices I discuss with him in private. He says that I will appear too extreme and lose credibility. He says he doesn’t necessarily disagree; just that the numbers are so high that people will laugh and lose the real message. I tell him that extreme projections can come true, and this silver projection can make regular people rich.

The best way to analyze silver is to compare it to something else, like gold. They have been used and compared for thousands of years. People say how gold is no one else’s liability, has been money for thousands of years and cannot be created at will. The same things can be said about silver. Central banks own tremendous amounts of gold and hardly any silver anymore.

Silver has come to be used so much by industry over the past 50 or 60 years that most of the inventories in silver have been used up. Now we have more gold above ground than we have silver above ground. Silver is more rare than gold. There are 5 billion ounces of gold above ground and only 1 billion ounces of known silver. We have over 62 years of gold production above ground. In silver, we have less than two years of mining production.

The rarer and more industrially needed item should be $650 and the more plentiful and less used item should be $13. I say that silver must go at least into the high triple digits to make a balance between the real inventory and the price. Silver will be $50 to $100, but it will be a mistake to think the party is over then.

So few believe that silver can go to such high numbers that it creates an opportunity for those who buy silver to become rich. In my opinion, that’s without taking big chances. Do you think there would be such an opportunity if everyone knew of it? All you need is a good silver position and to allow enough time for the fundamentals to work and for enough people to learn about silver.

You don’t have to put all your money into silver, just enough. And you must put it into the right kind of silver. You must have real silver in your own possession or silver stored for you in the right way. If you want to speculate on margin, then speculate. But don’t pretend you are making a real silver investment for the long term. And the long term is where the big money will be made. I hope that this article will help those holding silver to feel good about their holdings and helps to convince those not holding silver to get some.

The Raptors Rumble

By Theodore Butler

(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 remarkable saga of the raptors continues. I’m referring to the commercial traders on the COMEX, aside from the four and eight largest traders in the Commitment of Traders Report (COT). To summarize, over the past year or so, a pattern has developed where the smaller commercial traders in the large commercial category seem to be aggressively stepping in front of the dominant shorts in silver (and gold).

The recent sharp sell-offs in silver and gold do not disprove my theory, at least not yet. In truth, this last sell-off was so severe, especially in silver that I thought I might have to lay the raptor theory to rest. After all, silver sold off so sharply that it set a record for how much it traded under the 200 day moving average. I thought the big T. rex commercial shorts may have turned the tables on the smaller raptors by engineering the price so low that the raptors might be forced to sell. I was fully prepared, in that event, to title the article, "The Rex’s Eat The Raptors." Maybe that will be the title some day, but not today.

Instead, the raptors accounted for a disproportionate share, once again, of the dealer buying on the big break. Of the total commercial net buying of 7000 silver futures contracts, the raptors accounted for 5500. As a result of the raptor buying we hit some new milestones in the most recent COT, for positions as of 6/26.

The raptors now hold an historic net long position of some 14,500 silver contracts. The four largest traders are now short more than 104% of the total commercial net short silver position, also a record in percentage terms. Likewise in gold, some new records were set. The gold raptors now hold an historic net long position of 46,000 contracts and the eight largest traders now hold a net short position that is 155% of the total commercial net short position.

Given the extreme levels of concentration in silver and gold, and given the strong connection between concentration and manipulation, I am at a genuine loss as to why there is not more discussion on this issue. I see that plenty of people have picked up the significance of the COTs in general, but very few have dared speak up about the concentration levels, which are a key component of the weekly reports. As a reminder, concentration is reported because it is the prime requisite for manipulation, not because I say so, but because the CFTC and commodity law says so.

On another issue, the turnover in COMEX silver inventories continues. Over the past two weeks, some 23 million ounces have been received and 18 million have moved out. Of the amount received, 19 million ounces were in the ScotiaMocatta warehouse. It does not appear to be the same silver being transferred. Now that the first three days of deliveries have taken place on the big July contract, it does not appear that much of the silver received in the ScotiaMocatta warehouse was earmarked for delivery. I still have the opinion that the most probable reason for the in-movement was to camouflage the out movement. It’s as if someone wants to hide the fact that so much silver is being withdrawn. Of course, if my speculation is correct, that should be against commodity law as well.

Another One Bites The Dust?