(Israel Friedman is a friend and mentor to Theodore Butler. Mr. Friedman has owned and studied silver for 30 years. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct. Silver can go up and silver can go down.)

Many things are written about gold and silver, but at this time I would like to take a practical view. What looks more profitable – investing in gold or silver? I am more a silver bug than a gold bug, and you may think that I am prejudiced. But that aside, I think you will find out why I believe that silver will be a more profitable investment than gold.

Let’s think only the logical and rational way, that gold and silver are materials needed for regular consumption, and not look at them for insurance for catastrophic events. I will try to convince you, if you are an optimist, that silver is the best investment for you. If you are a pessimist, gold is for you.

The difference between optimist and pessimist is very simple. For the optimist, every day is a holiday. For the pessimist, every day is a burden. Generally, optimists are happy, pessimists are sad.

Before you invest in any material for the long term, you have to ask yourself what are my chances to make profits? There are three important questions you have to research,

1, What is the real supply/demand situation?

2. Will the future bring more demand?

3. What profit expectations are reasonable?

The first point is supply/demand. Silver today is in its best fundamental situation. For the last 40 years silver has been in a deficit, and most of the world stocks have been consumed. It is only a question of when a shortage will occur. Total silver stocks today are around 500 million ounces, and mostly held by small investors since Mr. Buffett sold his holdings. At one time, silver had a stockpile of billions of ounces and today we are left with almost nothing.

In contrast, for gold, the supply/demand is not favorable. In the last 40 years the world gold stock rose tremendously. Today, we have close to 4 billion ounces of gold.

For the first round, score one for silver.

The second point is the future economy and what demand for materials can be expected? This is a tricky question. I am an optimist and my opinion is that the world economy will grow in the long run. Maybe some short term problems from time to time, but longer term I see growth. I also see a future for the USA. The most important thing that has to happen to achieve this situation is that the US must become independent from foreign energy sources. This can come into being by alternative energy (supported by congressional initiatives) and conservation.

If this happens, and the US becomes energy independent, it will bring lower real oil prices plus a strong dollar and good balance of payments. In the end, as a bonus, the terrorism will be eliminated, just like President Reagan defeated communism through a strong economy. As a result, we will have an excellent world economy and peaceful times.

With the world economy booming, and billions of new consumers, the world will have a problem with how to supply the needed materials. The only way is by price rationing. Silver will be on the top of the list to benefit because of no overhang of world stocks.

Very few people know that silver is a rarer material than gold. That is because gold is priced much higher than silver. The price is all that most people look at; they don’t take the time to study the real situation. But, the price of silver will continue to gain on gold, and this will not go unnoticed. Then people will look more closely. When the world’s investors come to the realization that there is less silver above ground than gold, they will switch from gold to silver, regardless of price. The trick is to beat them to it.

A good economy isn’t bad for gold, but the people who are investing for the wrong reasons (crashing dollar, financial disasters, terrorism, etc) will be disappointed. The price of gold will not collapse, but will hold because of the price explosion in silver.

After two rounds, score 2 for silver.

For the third point, future price expectations, every one who invests asks himself what returns he should expect. To make good money by investing in a material, the best you can hope for is a shortage. And then you will see the highest price possible.

In this case, silver can achieve a shortage situation, because it is consumed industrially, but gold cannot. Gold can go higher in price, but it can’t be in an industrial shortage. I don’t want to pinpoint a specific price expectation in the event of a shortage, but my opinion is that in 10 to 20 years from now most of silver holders of 1000 ounces or more will become millionaires in good dollars. In the universities, they will study how only the small investor recognized the silver bonanza.

After 3 rounds, it’s 3 – 0 silver.

For the gold investor I say, if dark days will come, you may do as well as silver investors. But in my opinion, only optimists prosper long term, so I’d stick with silver. This is strictly giving my opinion, before you invest do your homework. Don’t forget the modern gold is silver.

We condensed a recent news article in the Minneapolis newspaper.

"Multiple children were drinking alcohol and some were reportedly smoking marijuana in the house where a 3-year-old girl was found Monday night with a 0.12 percent blood-alcohol level.

"The children’s mothers are sisters, age 32 and 31, each have six children ranging from 1 to 15. The petitions in juvenile court describe a chaotic scene where police found the toddler unresponsive, ‘fresh vomit all over the house’ and drunken adults yelling to each other.

"The 3-year-old drank Windsor Canadian whisky after the girl’s 14-year-old brother gave it to her in a cup and said it was juice, court documents said.

"A 5-year-old daughter told authorities that she and three cousins, two of whom are 4 and 6, also drank alcohol.

"According to court documents: Police officers noticed a ‘thick haze of smoke’ and a strong smell of marijuana in the home. Children were smoking marijuana. Officers also found liquor spilled on the floor and soiled clothes and food strewn about the house.

"The 3-year-old’s eyes were wide open but were glazed over and she was unresponsive.

"Officers found a juvenile male who appeared intoxicated and smelled strongly of alcohol crawling out a window. Adults home at the time – police have said there were four – were drunk and unable to dress the children.

"One mother was previously convicted of second-degree murder in 1997 and sentenced to five years in prison in the stabbing death of a woman. She has been the subject of five child-protection reports dating to 2000, including a finding of sexual abuse and endangerment regarding one of her daughters.

"The other mother’s record includes theft convictions. She had multiple contacts with County Child Protection, most stemming from domestic assaults."

If you think pre-schoolers smoking marijuana are a rarity, you’re wrong. It’s not uncommon among the urban underclass. That says nothing about sexual promiscuity, thievery, drug peddling and violence among pre-teens and young adults. It’s a social mess of staggering proportions brought to you by our liberal social thinkers and bureaucrats. Social agencies are so incompetent and corrupt they will not remove an innocent child or even a tiny infant from abusive, chemically dependent mothers with scumbag boyfriends. Sexual and physical abuse goes unnoticed and ignored. These brutes are killing infants and children accidentally or on purpose with alarming frequency. Unfortunately, little kids who survive these toxic mothers, relatives and boyfriends are likely to grow up to be hoodlums themselves. This is the circle of dependency and crime that government is purchasing for you with your own money. Your tax dollars fund social programs that produce grossly dysfunctional criminals and addicts. Unfortunately, your grandchildren face the prospect of life among swelling numbers of remorseless criminals.

Our cities are full of similar horror stories. Social programs that pay unwed mothers for every child they have only encourages the least responsible to have multiple births. By some estimates, the birth rate of the underclass is three times greater than that of the general population. There’s a million little kids in our country whose character is being ruined by lack of love, chaotic behavior and bad example. Alcoholics, drug addicts, prostitutes and criminals are not fit to raise children. Social workers should be tarred and feathered for leaving babies with these lowlifes. If you took these infants away from the clowns raising them and put them in good homes, twenty years from now they’d be graduating from college instead of going to prison.

We’re worrying about the wrong things in this country. What could be more important than protecting little children from criminally negligent adults? What could be more important than transferring kids from behavioral hellholes into loving, secure homes or even orphanages. Prohibitions against interracial adoptions are the insane handiwork of liberal social workers. The American people will step up and save these children if given a chance. For that to happen, the liberals must see the gravity of the problem and admit their policies have caused this social mayhem. Frankly, I think they would rather turn their back on these kids than admit their socialist claptrap is bankrupt.

(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 big market news a few weeks ago was the sudden and shocking blowup of the large hedge fund, Amaranth Advisors. In little more than a week or two, the fund reportedly lost $6 billion, or 65% of its capital, making it the largest derivatives loser in history, principally as a result of bad natural gas spread trades. (Previous big derivatives losers, like Barrick Gold, must have welcomed being surpassed.)

Much has been written about Amaranth, as is fitting considering the magnitude of the loss, but I’d like to add a few thoughts in keeping with my central theme over the past few months – the danger of concentrated market positions.

First of all, it would be proper to provide a working definition of just what constitutes a concentrated market position. Simply stated, it is a position held by one, or a few related entities, that is large relative to the rest of the market. We are talking about very big positions, both in absolute and relative terms. A concentrated position always represents a big chunk of the market.

This was the hallmark of Amaranth’s natural gas position. It was an extremely concentrated position, so large and such a big chunk of the market, that when it was liquidated, it wasn’t even truly liquidated – it had to be assumed by other entities in arranged transactions. This is confirmed by published reports and a study of the concentration data in the Commitment of Traders Report.

I guess you know you have a concentrated position when you have to dispose of it differently from the way you acquired it (through normal market transactions), and it costs you $6 billion in the process. It would be easy to say that the trader responsible for this debacle should be horsewhipped for not having a proper exit strategy, but that adds little to our knowledge base.

What can we learn from Amaranth? Primarily, we should learn, once again, that concentration leads to bad things. No general good comes from concentrated market positions. Concentration goes hand in hand with manipulation. (Here’s a prediction - the CFTC will charge Amaranth, sooner or later, with attempted manipulation.) Concentration is always present in delivery defaults. Disorderly and disruptive pricing is always caused by concentration in some form.

This is why regulators monitor, or claim to monitor, concentration. It does not matter if the concentrated position is long, short or spread; concentration is behind every market problem. This is the first thing that regulators learn, or should learn.

My concern is that the evidence strongly suggests that the regulators don’t seem capable of grasping the basics of concentration. In a very real sense, the CFTC and the NYMEX/COMEX (a Self-Regulatory Organization) have misjudged the concentration issue at every turn. They certainly missed it in natural gas and Amaranth, in spite of truly alarming levels of concentration in natural gas spreads, where the largest spread traders controlled dominant percentages (almost 35%) of the entire market, equal to hundreds of thousands of contracts. (I hope no one was surprised that the natural gas concentration problem involved the NYMEX.)

How is it possible that the CFTC and the NYMEX blew it, once again, when it came to spotting a problem in natural gas? After all, the concentration data compiled and published by them indicated a big problem well in advance. I have come to a conclusion – neither the CFTC nor the NYMEX is capable of dealing with concentration. The people responsible for detecting concentration or manipulation need to be replaced.

Nowhere is the evidence of a concentration problem more evident than in silver. While the overall COT structure of the market in silver (and gold) rarely looked better, and provides a spectacular buy point, the concentration by the largest traders has grown to absurd levels. In the most recent COT report, as of September 19, the 4 largest traders are now net short 34,809 futures contracts, or more than 174 million ounces. Incredibly, these four large traders now control 97% of the total commercial net short position, the highest in memory and a substantially higher concentration than when I started complaining to the CFTC and the NYMEX almost 4 months ago.

In other words, if these 4 traders’ positions didn’t exist, there would be, effectively, no dealer short position on the COMEX. It is, quite literally, these four traders against many thousands of long participants. The true test of a manipulation has always been what would the price be if the concentrated position did not exist? Why won’t the CFTC or the NYMEX answer that question?

Just so no one thinks that the big 4 can’t have an even more concentrated position, the sad fact is that they already do have one. Commencing with this week’s report, the CTFC is now also reporting on the silver contract traded on the Chicago Board of Trade (CBOT). While this market is only 10% of the size of the COMEX in terms of total open interest, the concentration by the big 4 and 8 short traders is actually much greater in percentage terms than it is on the COMEX.

I would bet that the largest short traders on the CBOT are exactly, or largely, the same as on the COMEX. If I am correct, it is clear that the big shorts from the COMEX are extending and continuing their manipulation on the CBOT. I have notified the CBOT of this data.

Finally, I want to thank everyone who took the time to contact the SEC, asking them to delay the NYMEX’s IPO until they openly respond to the allegations of concentration and manipulation. Unlike the CFTC, the SEC has responded promptly, indicating they take the matter seriously. I find this very encouraging. I am sorry I have been unable to respond to copies of your notes to the SEC and the replies you have received from them, but I appreciate them deeply. Likewise, all the e-mail I’ve received recently.

At this point, I would give the SEC (and the CBOT) the benefit of doubt. They are not up to their necks in denying the silver manipulation for 20 years, as are the CFTC and the NYMEX/COMEX. They do not have a vested conflict of interest in maintaining the silver manipulation. I believe these people are honorable and are interested in doing the right thing. But they are unlikely to act if not prodded by the public. I admit it is a long shot to try and get the SEC involved, considering the power and stature of the parties who prefer the status quo. But it is a no-risk long shot that can yield tremendous results. If you agree and haven’t done so yet, please let them know your feelings. It can’t hurt, and just might help tremendously.

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

It’s a simple and easy process to transfer all or part of your IRA or Roth IRA into silver. The same easy steps apply when rolling over funds from a qualified plan, such as a SEP or 401K. Call us at 1-800-328-1860 and request an IRA applications from one of our brokers. You can also download the application forms for traditional IRAs by clicking on the IRA link on our website www.investmentrarities.com. It’s a simple application form and an easy way to add silver into your retirement mix.

(IRI does not necessarily endorse these views.)

All the reasons that people buy gold also apply to silver. However, while the supply of silver shrinks the supply of gold grows. That’s why future price gains in silver should dramatically outpace gold. My advice is to switch out of gold into silver. There couldn’t be a better time. If you do this, I believe you will experience a dramatic improvement in your fortunes as silver begins a price runnup that will go into the history books.

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.

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.

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.

Call us now at 1-800-328-1860 and buy silver.

Sincerely,

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