(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.)

With gold selling for around 50 times the price of silver, you may be perplexed to hear me say that silver is more valuable than gold. It seems like an obvious contradiction. What I mean, exactly, is that silver has heavy demand by industry, while gold has limited demand, other than for jewelry. In terms of its necessity to a modern society, silver has the highest value and the greatest utility. An ounce of silver has more value to industries that must have it than does an ounce of gold. An opportunity exists because the current price doesn’t reflect this fact.

For 60 years more silver has been consumed by industry than produced. That’s the most bullish circumstance possible for a commodity. Silver is in much greater demand by industrial users worldwide than is gold. Yet gold sells for fifty times the price of silver.

For the past 60 years silver was dumped onto the market without much regard to price. The U.S. Government sold off inventory of five billion ounces. This silver has been used up by industry and is gone forever. A few years ago the U.S. Mint announced they would have to buy silver on the open market.

That’s only part of the story. You may be shocked to learn that there’s more gold around than silver. About five times more gold is documented in above-ground supplies than silver. Furthermore, there are less years of silver production remaining underground to be mined than gold. These powerful facts are not currently reflected in the price. However, some day they will be. That’s why the opportunity for profit exists in silver like no other opportunity in history. Nothing in the world has the potential to multiply your net worth like silver.

Today, world silver inventories are at the lowest point in 200 years. All the known and recorded silver in commodity warehouses, and elsewhere, only comes to 250 million ounces, and most of that is tied up and unavailable. Industry requires over 900 million ounces each year. Mining and recycling fall short of providing the necessary silver.

Silver is the best conductor of electricity. Every computer, server, monitor, cell phone and switch must have silver. Lasers, satellites, high-tech weaponry and robotics, all require silver. Digital technology and telecommunications need silver. Around the house there’s silver in every TV, washing machine, wall switch and refrigerator. Conductors, switches, contracts and fuses use silver because it does not corrode or cause overheating and fires. Silver is used heavily in photography and in prints. Meanwhile, new and exotic uses for silver are expanding.

A new double layer of silver on glass is sweeping the window market, as it reflects away almost 95% of the hot rays of the sun. A new electronic application for "smart tags" that are replacing bar codes could use significant quantities of silver.

Silver achieves the most brilliant polish of any metal and is the best reflector of light, allowing it to be used in mirrors and in coatings for glass, cellophane or metals. Chemical reactions can be significantly increased by adding silver. Approximately 700 tons of silver are in continuous use in the world’s chemical industry for the production of plastics.

Batteries are now manufactured with silver alloys. Lead-free silver solder is used heavily for joining materials and producing leak-tight joints. Silver is also widely used in silk-screened circuit paths, membrane switches, electrically heated automobile windows, and adhesives. Silver has a variety of uses in pharmaceuticals. Silver sulfadiazine is the most powerful compound for burn treatment. Catheters impregnated with silver eliminate bacteria. Silver is increasingly being tapped for its bactericidal properties and water purification. In the face of all these industrial uses there is less silver available.

Here we have a vital material, known to all men for all time, literally disappearing before our eyes, both above and below ground. It is a material upon which modern life and rising standards of living are dependent. It is beyond indispensable, it is a miracle metal.

The stock bubble and the real estate bubble better move over, because I’m going to tell you about a bubble that will be talked about for as long as mankind exists; the silver bubble. At the epicenter of reasons for launching silver to the heavens is the coming end of artificially depressed silver prices. There is no legitimate free market explanation for such extremely depressed prices in the face of greater demand and depleted world inventories.

For 20 years, there has been an outsized silver short position on New York’s Commodity Exchange, Inc. (COMEX). This paper short position has been unique, in that no other commodity has ever before had a short position larger than its world production and world known inventories. This accounts for why silver has been depressed in price. But shorting is a two way street. While the shorts have had their way with the price of silver for a long time, when those shorts are brought back or covered, the price effect of shorting is reversed and it becomes bullish.

You can’t keep the price of anything artificially depressed for decades and not expect violent counter moves when the artificial restraint is suddenly removed. So it is logical to assume that, when the silver price suppression ends, we will get a severe jolt to the upside. Silver must move to a price point where supply and demand balance. Considering how long silver has been kept depressed, it will take an extremely high price to accomplish this balance. It is very possible that, in the inevitable move to a market equilibrium price, we could overshoot dramatically to the upside. A short covering panic appears unavoidable at some point, because of the large size of the short position. That could create triple digit silver all by itself. Silver is a prime candidate for a future price explosion that is historic and worldwide in scope. The fundamentals of silver are so bullish and so compelling that I couldn’t make them up if I tried.

The amount of silver used in each industrial application, while vital to the finished item, is a tiny percentage of the product’s total cost. This means industrial users will not readily substitute other materials for silver in a price rise. If the price of silver jumps significantly, they will be more inclined to build inventories.

When the inevitable silver shortage hits, it will be only a matter of time before industrial users try to protect themselves from delays and price increases. They will attempt to build inventories of silver. You don’t risk the shutdown of an assembly line for want of a single, low-cost component.

As industrial users try to immunize themselves from assembly line shutdowns, extraordinary demand will make the supply tighter.

This is how panics occur. The price of palladium rose to over $1,100 an ounce because industrial users panicked and built inventories. Silver is used in many more applications than palladium. That increases the chance that silver users will panic and try to build inventories. If a panic does develop, there is only one known cure – it must burn itself out at extremely high prices.

There are many forms of paper silver where the real silver does not exist, including pool accounts, leveraged accounts and bank silver certificates.

These accounts offer cheaper commissions and storage fees (since there is no real silver backing). I would estimate that there is well over a billion ounces of silver held in this form, perhaps by Swiss banks alone.

The issuers have use of "free" money, which is highly profitable to them as long as silver doesn’t move up in price. But when silver moves up decisively, the issuers are, in essence, holding a short position. This is just another one of the many unique reasons for a historical blow off in the price of silver. At some point, with a high enough price of silver, the issuers can panic and try to limit losses. The only way to limit their losses is to buy silver. The net effect of the cumulative short positions in silver amount to a hydrogen bomb, on top of an atomic bomb, on top of a neutron bomb.

This article answers the CFTC’s response to the articles and letters sent to them alleging manipulation in the silver market. My allegations were based upon evidence provided by the CFTC itself in its weekly Commitments of Traders Report (COT). It showed a small number of traders were short more silver than existed in world deliverable inventories and represented a concentration greater than had ever existed in any prior manipulation. This extremely large concentrated short position held on the COMEX is the necessary requirement for manipulation.

The New York Mercantile Exchange (NYMEX/COMEX) was jointly notified with the same letters and allegations as the CFTC. There has been no reply from them, to my knowledge. I consider this strange because the NYMEX is a Self Regulatory Organization * (SRO), and provides the primary defense against violations of commodity law. In other words, it should have been the NYMEX responding first to the allegations of manipulation, with the CFTC deferring to them. That’s the purpose of the SRO structure. The Exchange is the primary regulator, and the government is the backstop. In this case, the CFTC has become the spokesman and defender of the NYMEX, even though this is contrary to the SRO structure.

(*A non-governmental organization that has the power to create and enforce industry regulations and standards. The priority is to protect investors through the establishment of rules that promote ethics and equality.)

My only conclusion is that the NYMEX/COMEX won’t offer a defense against the allegations of manipulation because they are afraid that any discussion might jeopardize their proposed initial public offering. They don’t want to go there. I suggest they intend to dump the whole silver manipulation problem onto the investing public. If you are as fed up as I am about this exchange ignoring their regulatory responsibilities, I’ll suggest something you can try to do about it at the end of this article.

Now to the CFTC’s responses. The first one was sent on August 23, to only one person that I am aware of. The second response was sent on September 6 to many people.

The early response contained two paragraphs trying to show how having a short position greater than deliverable supplies is very normal in commodities. But the recent LME nickel default proved that to be false, and the CFTC did an about face and removed those paragraphs from subsequent responses. Both the original inclusion and the subsequent removal of these paragraphs make the CFTC look foolish.

The CFTC took three months to answer with their September 6 reply. Three months is an outrageous and intentional delay, especially for such a non-responsive reply. The simple fact is that the CFTC delayed for as long as they did so that time alone might cause people to forget what the real issue was. The CFTC has been reduced to time delay tricks precisely because they can’t answer the simple allegations and questions posed to them straight up.

The CFTC did not refute a single statement of fact in any of my letters or articles. They didn’t deny that silver has a higher concentrated short position than ever existed in any prior manipulation. They didn’t deny that the short concentrated silver position is greater than the concentrated long position to an extent greater than in any other commodity. They didn’t deny that eight or less traders are net short the entire commercial short position or what thousands of traders held net long. They didn’t deny that the concentrated short position was greater than total world deliverable supplies, and this constituted a grave danger for delivery default. They didn’t say that the short position was backed by real silver or legitimate hedging obligations; which they couldn’t possible document. They couldn’t deny that the very reason they maintained concentration data was because concentration goes hand and hand with manipulation, and if the silver concentration were on the long side, and not the short side, they would have cracked down on it, as they have in the past.

So what did the CFTC say in their response? They made three points, all bogus and deceptive. The first point was to try and show that the concentration on the short side wasn’t large compared to other markets, the majority of which are not physical delivery commodities. They wanted to compare apples and bananas. You can’t have a delivery default in a cash-settled market or a market on financial futures. You can have a delivery default in a physical commodity market, particularly with a large concentrated short position, like nickel or silver.

More importantly, the CFTC was intentionally deceptive in how they calculated concentration. They slyly added option open interest strictly for the purpose of inflating the total open interest. They know full-well that options are a derivative on derivatives and that silver option open interest is 75% spreading (establishing a long and short position simultaneously). The intent of this was to make the open interest artificially high, which makes the concentration appear less than it really is.

What the CFTC has attempted to do is to steer the allegations into some sort of debate on percentages of concentration in various markets. They want to turn it into a meaningless numbers debate, ignoring an obvious crime in progress. This was never a debate on percentages, it is a question of a handful of traders holding a net short position more concentrated, compared to real world supplies, than any concentrated position in history. It is a question of the CFTC not enforcing the law applying to the current COMEX concentrated short position, even though they have always moved against long concentrations that were less concentrated than this one.

What the CFTC should be doing to study real concentration (and they know this) is to strip away all "phony" open interest, not add more. They should also be removing phony futures spreading to determine true concentration. It has been suggested to me by those knowledgeable about these matters that the big spreading in COMEX silver futures is uneconomic and designed solely to make the concentrated short position look much less than it really is. Shame on the CFTC for resorting to such shallow number games.

If one looks at percentages alone, which is what the CFTC wants you to do, you lose the evidence of the allegation. This is their intent. No market has a higher overall concentration than silver, especially when you strip away phony open interest. It is when you compare the concentrated short positions to real world supplies that silver really is off the charts. If you compare the concentrated gold short position, for instance, to real world gold supplies, and do the same for silver, you’ll see silver’s concentrated short position is 100 times larger. Similar comparisons yield the same result (as Loeb pointed out in his letters to the Commission). The CFTC ignored this completely.

Next, the CFTC tries to portray the concentrated short position as not changing much in big price run-ups and declines. While I agree there is a "perma short" quality to the concentrated short position, that only confirms the long-term nature of the silver manipulation I have alleged. It is the inclusion, once again, of extraneous option open interest that allows the CFTC to reach such a bizarre conclusion.

The final point that the CFTC makes is the cruelest to the victims of the silver manipulation. They claim that the concentrated shorts sell on the way up and buy on the way down, something that is common knowledge and proof of the manipulation. What they don’t say is how the shorts do this, which is clearly by collusion and withdrawing bids and offers at critical times, like recently on the downside. The CFTC tries to portray the concentrated shorts as providing support to the market on the way down, ignoring their collusive methodology. It is akin to proclaiming a burglar as a crime fighter because after cleaning out a house, he’s made it theft-proof.

In its entirety, the CFTC’s response was weak, non-responsive and downright deceptive. It was designed to cloud the issue, not clarify. I can’t help but reach the conclusion that the CFTC had to know the real story in order for them to issue such a misleading document. They could not be this ignorant. They had to know the truth in order to lie like this. The only question is why they are failing to enforce the law. Are they too embarrassed to admit they blew it for 20 years, or are they beholden to the big shorts for some unstated reason?

What to do now? As I have previously written, the response from the CFTC would not mark the end of the campaign to end the silver manipulation. Rather, it might serve as a springboard to further action. Today, I need your help to put pressure on the NYMEX/COMEX, the wellhead from which the silver manipulation flows.

If you have reviewed the unfolding saga of the silver manipulation, including the recent response from the CFTC and the vicious engineered sell-off, and feel that they have done nothing to dispel the existence of the manipulation, I have a suggestion for something you can do now.

Since the real problem lies with the NYMEX/COMEX, and their failure to eliminate the manipulation, or even respond to credible allegations of that manipulation, that is where the pressure should be applied. Specifically, I am asking you to contact the Securities and Exchange Commission (SEC) and ask them to delay the NYMEX’s plans to go public, until they address the issue of silver manipulation in an open manner. A legitimate SRO would not hide from, or ignore, allegations of manipulation, which is the most serious market crime possible.

There exists the strong possibility that Exchange insiders know of and/or are involved in the silver manipulation, and are anxious to transfer the great liability that a silver manipulation/default would bring from seat holders to public shareholders. There couldn’t be anything more wrong than this. It would be a shame of the greatest magnitude for the SEC to permit this. The SEC should force the NYMEX to address these concerns before allowing them to go public.

I believe the SEC will listen to you. I know it can’t possibly hurt for you to contact them, and may, in fact, help tremendously. You are not asking the SEC to investigate the silver manipulation, you are asking them to force the NYMEX/COMEX to go on the record and openly address the allegations of manipulation, that would be expected of any legitimate Self Regulatory Organization. Even if the NYMEX responds that there is no manipulation, it will force them to go on the record and leave them more liable if, and when, a default occurs.

The contact info for the SEC is as follows. Feel free to send or reference this, or any article of mine.

Division of Corporation Finance at 202-551-3500 or by e-mail at cfletters@sec.gov

And/or Chairman of the SEC chairmanoffice@sec.gov or you may contact them by mail at the following address:

SEC Headquarters

100 F Street NE

Washington DC 20549

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Howard gives a sophisticated, but down-to-earth, twist to investing in gold and silver. He doesn’t write for Wall Street but for Main Street. He conveys a bedrock philosophy on what you must do to make the most money. He knows that people can lose money in volatile markets (even when they’re going up) and his strategy completely avoids that possibility.

Howard’s latest, up-to-date information on gold and silver indicates powerful, bullish forces at work that should propel these metals to huge new highs. Ruff’s Little Book of Big Gold and Silver Fortunes" presents all these timely facts in an entertaining and readable format. This book is all you need to thoroughly educate yourself on the what, where, when and how of gold, silver and mining stocks.

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One of the reasons that savings are so low in the U.S. is that inflation erodes the purchasing power of money. Low interest rates further lower the incentive to save, and these low rates are also the primary method of inflating. Our solution is for people to save in the form of precious metals. Silver and gold were the world’s money for three thousand years, until the 1930s. They are still considered an alternative money. Someone once said that when you buy these metals, you take your money out of the system and put it on the sidelines. Taking it out of a depreciating currency and parking it in silver seems like switching into a form of savings that not only protects your wealth, but can make it grow.

In silver you have an ageless precious metal with an intrinsic value still selling at a reasonable level. This tangible asset stands outside the paper monetary system. There’s nothing else like it. It has universal demand by industry and people around the world who value it because it’s scarce and precious.

Silver became money on its merits before there was such a thing as industrial development. Then, fifty years ago industrial uses for silver literally exploded, and the above ground supply, that was once used for money, was rapidly depleted.

Ted Butler says, "On the first real price rise, the owners of that tiny remaining inventory will realize simultaneously just how valuable their property is, and will do what people have done for the entirety of human existence – they will hold their property tighter than ever before, or demand an ever-escalating price. And it will come overnight. That is the silver window that is about to shut tight for perhaps another 30 or 40 years."

Among the best available silver items today are 90% silver coin bags. These coin bags have a $1,000 face value. You get 2,000 silver halves, 4,000 silver quarters or 10,000 silver dimes. There are 715 ounces of silver per bag. A bag weighs 55 pounds and is the shape of a bowling ball. We ship them in half bags, registered and insured through the mail in plastic pails and marked "machine parts." The coins are all dated prior to 1965, when silver was eliminated from our coinage.

For storage 1,000-ounce silver bars are a good way to go. These large 68-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.

BU Dimes and Quarters: These uncirculated bags of either Roosevelt Dimes or Washington Quarters have 725 ounces of silver. They are generally dated in the 1960s. The supply is small.

BU Kennedy Half Dollar Bags: These uncirculated silver coins were struck in 1964 only. A bag contains 725 ounces of silver. We don’t get many. It’s probable that a lot of these coins have been melted.

U.S. Silver Eagles: These one-ounce silver coins are newly struck by the U.S. mint. They have a face value of one dollar. They have a Walking Liberty on their shimmering surface and are big beautiful coins.

Complete roll sets of U.S. Silver Eagles are available. This set includes one roll of coins for each year of mintage, from 1986 through 2006. There are 420 coins in 21 rolls of 20. These sets are hard to put together.

Put 10% of your net worth into silver. Get this all-purpose precious metal now at today’s still reasonable prices (according to Ted Butler). Industry wants silver, and so do growing numbers of individuals. Call us today. 1-800-328-1860

Sincerely,

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