TED BUTLER COMMENTARY

                                                     July 10, 2007

                                                 As Good As It Gets?

(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 most recent Commitment of Traders Report (COT), for positions held as of July 3, contained some surprisingly bullish data for silver. The report indicated another sharp reduction in the total net commercial short position, by almost 6000 contracts, to the smallest net short position (42,000 futures contracts) in nine months. While the total net short commercial position in gold widened a bit, we are still at a very low level of commercial net shorts in gold, indicating that both silver and gold are structured to move higher. Perhaps sharply higher.

In fact, it’s hard to imagine how there could be a continued significant improvement in the COTs for silver or gold. This would appear to be the time for a maximum exposure to the upside, especially in silver.

Aside from the extreme bullish structure in the COTs, always good news for metal investors, there were some further milestones set in the COMEX silver market that cannot be considered good by advocates of free markets. The concentration on the short side of COMEX silver continues unabated. For the life of me, I can’t decide what is worse; that the silver manipulation is so blatant, or that so many are silent on this issue, particularly those in regulatory or industry-leadership roles.

The new COT report shows that the four and eight largest COMEX silver traders now hold an historic concentrated short position, compared to the total commercial net short position, in percentage terms. (And on a straight contract basis, the big shorts are not that far from historic levels.) The four largest traders now hold more than 118% of the total commercial net short position, while the eight largest hold over 146% of the total net short position.

Meanwhile the raptors just rock along, with the smaller commercials now net long almost 19,500 contracts, the most I’ve ever seen. Of the almost 6000 total futures contracts bought by the commercials in the most recent COT report, the raptors accounted for 5,000. The only real question is that when we eventually get technical buying as prices climb through the various moving averages, will the raptors sell and take quick profits, or will they sit back and do nothing and let prices truly explode? We should know soon enough.

The central issue in the silver market, in my opinion, continues to be how this super concentrated position on the short side be allowed to exist. Let me keep this simple. We have never witnessed, in the history of the commodities markets, such an extremely concentrated position that we now see in COMEX silver. Not in the Hunt Bros. long side silver manipulation, not in the Sumitomo copper manipulation, not even in the Amaranth natural gas fiasco.

This concentration issue is not complicated. There cannot be manipulation without concentration. There cannot be concentration without the extreme likelihood of manipulation. This is why the concentration data features so prominently as a regulatory tool and is an integral component of the COT report on every commodity. The concentrated short position in COMEX silver is so extreme, that it does not even matter if real silver or alleged hedges back this short position. Concentration equals control. Markets cannot be controlled and be considered free.