WEEKLY COMMENTARY

November 15, 2005

BUTLER’S BULLSEYE

The November 8 Wall Street Journal carried an article about the Silver Users Association’s attempt to block the new Silver Exchange Traded Fund proposed by Barclays. They report the same argument that Ted Butler explained in previous articles. He said there wasn’t enough silver available for the fund and any attempt to procure it would drive up the price. In fact, it seems clear to me that Butler’s articles actually initiated the current attention on this issue.

Here’s excerpts from the article:
"A group representing companies that use silver for industrial purposes is seeking to block the launch of an exchange-traded fund tied to the precious metal, leading some observers to question whether federal regulators will allow the fund to go forward.

"The Silver Users Association, a lobbying group interested in keeping an orderly silver market, has asked the Securities and Exchange Commission to deny an ETF currently in registration from investment manager Barclays Global Investors. Unlike traditional mutual funds, exchange-traded funds trade all day on exchanges like stocks.

"The organization says a silver ETF would create a price squeeze in the metal because the fund would have to buy a large amount of silver to back the fund’s shares before the launch…

‘A silver ETF would only exaggerate silver’s illiquidity given the sheer volume of physical silver needed to be shipped and stored,’ the group said in its letter to the SEC"…

"The SUA says part of its mission is to keep silver prices low and keep the metal readily available for users. The association’s members include jeweler Tiffany & Co., photographic-equipment maker Eastman Kodak Co. and chemical giants Dow Chemical Co. and DuPont Co."

I’ve asked Ted Butler to explain what all this means to those who own silver or plan to buy it. As always, these are his thoughts and not necessarily those of Investment Rarities, Inc.

COMMON SENSE AND THE SUA

BY THEODORE BUTLER

When I first wrote about the proposed silver ETF back in June, I had no idea that the Silver Users Association (SUA) would confirm my take on the matter. My take, of course, was that the silver ETF was going to be good for silver, regardless of whether it actually came into being or not. If it came, great, as that would provide big demand for scarce actual silver. If it didn’t come, that would also be great, as that would prove to all that there was not enough real silver available for sizable investment.

In the event that the SEC rejected approval for the silver ETF, I had anticipated that rejection would be accompanied by a "spin" designed to obscure the real reason, namely, not enough real silver. I thought people would have to think to see through the spin to get to the real reason for rejection. I had never anticipated that my old nemesis, the SUA, would make everything so clear and easy to understand. Thanks to the SUA, we have entered into the "No Spin Zone."

Please remember, it has yet to be decided if the silver ETF will be approved or rejected. But that determination is suddenly of secondary concern. What is of primary concern is the actual debate and publicity that this issue has garnered. Out of nowhere, the main topic of discussion is the Silver Users Association and the silver ETF. I have seen more written, in the past few weeks, on this issue than any single silver issue, since Warren Buffett’s purchase 8 years ago. It is on everyone’s mind in the silver world.

How the SUA came to be the center of attention is remarkable and somewhat an outer-body personal experience for me. I’d like to explain why. Long before I started writing for Investment Rarities, and even before I started writing on the Internet, I conducted a one-man campaign against the SUA, starting about 20 years ago. I did everything I could think of to expose the SUA for the corrupt organization I believe that they are. I mean everything.

I got the Bureau of Mines to stop using SUA-sponsored silver consumption data in official US statistics. I contacted the CEOs of the leading members of the SUA at the time, including Eastman Kodak, DuPont and 3M, to stop their collusive price influence on the silver market. I lobbied the mining companies to stand up to the SUA. I contacted every media source I could think of to expose the SUA’s illegal influence on the silver market. Looking back on my past letters, I didn’t just petition the Justice Department to put the SUA out of business, I actually harangued them with numerous letters and phone calls. I contacted more elected and regulatory officials than I can count.

I tried my very best to show how if it were illegal for big producers to collude to raise prices, it was illegal for big industrial consumers to collude to lower prices. But, in spite of an effort that I don’t think I could duplicate, at this stage in my life, I did not succeed in exposing the SUA to a widespread audience.

That’s what is so remarkable about the recent turn of events. I couldn’t expose the SUA, but they turned around and exposed themselves. If they hadn’t publicly announced their opposition to the proposed silver ETF, very few in the silver world would have even been aware of the SUA. They shot themselves in the foot. Of course, I feel like I did help them hold the gun at least, as I’m convinced that my article in June on the ETF was what prompted the SUA to take the extraordinary public stance against the ETF, in the first place.

What is so special about this whole SUA/ETF story is that the cat is out of the bag in a number of ways. First, the SUA has exposed itself to the world for what it really is – an organization whose sole purpose for existence is to depress the price of silver any way it can. If that’s not illegal, I don’t know what is. Second, it should be expected that the members of the SUA would follow their own advice and seek to secure real silver before the shortage they expect actually hits. Third, the SUA has succeeded in uniting the silver world against a common enemy – the SUA itself. I have yet to hear anyone praise the SUA for its stance against the silver ETF.

But most important is the message it is sending to you, the silver investor. This is your wake-up call to complete your silver purchasing plans. The SUA has confirmed everything I have ever written about in silver. They didn’t intend to do that, but there was no other way. You can’t objectively analyze the silver market and not come to the conclusion that the market must explode due to an inevitable shortage.

All this fuss over one proposed silver ETF should make you think. Several gold ETFs, no problem. One silver ETF, big problem. There was no open and organized opposition to the gold ETFs, and their ultimate creation and active trading has led to no shortage in gold. The open and organized opposition by the SUA to the silver ETF confirms which commodity has the most critical supply/demand situation. When someone goes out of their way to prevent others from buying what they want to buy in your place, you can be sure they are not doing so for your benefit.

Whether the silver shortage becomes apparent due to the ETF, as the SUA seeks to prevent, or whether the shortage becomes apparent later, is not important. What is important is that the silver shortage will soon be upon us. And when the shortage is obvious to all, say good-bye to the current give-away prices.

What remains to be seen is whether the sudden attention on the SUA results in my long held dream and goal, namely, the discrediting and demise of this corrupt organization. There is no place in a legal and free market environment for collusion among the largest industrial consumers to influence price. I am hopeful that this ultra-rare spotlight on the SUA causes people to wake-up and recognize the true nature of these manipulators. The real issue is not whether the silver ETF gets approved, but rather if the SUA is allowed to continue to exist.