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THE WEEK THAT WAS
By James R. Cook
Business was booming throughout the shortened holiday week and gold and silver prices were on the rise. Every morning on my way to work I talk on my car phone with silver analyst, Ted Butler. Last week he expressed concern about the possibility of a sharp drop in the silver price. That’s because a few large banks and brokers continue to short silver. As more and more buyers appeared in the futures market the shorts took the other side of the trade and to a great extent, capped the price rise. They’re still in control,” he told me.
I asked if they could claim they were providing a market making function as justification. “No way, it’s an auction market. It’s nothing other than manipulation. They’ve got a huge short position and they won’t let it get away from them if they can help it.”
The purpose of this big short is to eventually cover at a much lower price. It’s happened that way before many times. In the past, the hedge funds and technical trading funds would all switch to a short position and the big bullion banks would close out their shorts on the price drop that the hedge funds fostered. Unless the hedge funds stay long and begin to squeeze the shorts, the bullion banks will be able to have their way again. If a handful of banks have enough money to keep the lid on this market and they are neither miners nor users and have no hedging purpose other than speculation, doesn’t the sheer size of their positions cry out that this is manipulation? Of course, this is Ted Butler’s primary contention. See his letter to the CFTC in our last Weekly Commentary.
Ted believes that the price of silver must eventually explode. He doesn’t feel nearly as strong about a big jump in gold from here, now that its price has jumped 20%. He feels the central banks can cap a move in gold, if they desire, since they still own massive quantities of gold. But central banks can’t do that with silver because they don’t own such large quantities.
At this weeks $325 gold price, he told me that just about all the gold mines are profitable. At $5.00, practically no silver mines are profitable. That’s a huge difference. It’s proof of big-time manipulation, leasing lunacy and an oncoming shortage. It’s why we currently favor silver.
Ted must have been doing a lot of thinking last week. One morning he began to talk about Enron and Dynergy and El Paso and the advent of trading companies a few years ago. “Suddenly, they were there. Why? Why does a big insurance company like AIG, or a bank like JP Morgan Chase need to take naked trading positions on commodities like silver? Why do they even have a trading department? Enron blew up and so can others. For the most part, they’re just speculating and gambling like anybody else. But, if they gang up on a commodity, they can control the price for a while. The energy companies did it in the California natural gas and electricity markets. I think the financial money-center giants are in cahoots when it comes to silver.”
Saturday morning I made my weekly telephone call to the economist, Dr. Kurt Richebacher in the south of France, where he lives. He warned of an approaching economic calamity. He thought gold would continue to go up for a long time because the dollar would sink much lower. That will be the death knell of the stock market, he told me. Foreign investors would be reducing exposure to the U.S. and eventually so would Americans.
The U.S. has ten trillion of foreign debt. By my reckoning, the six percent drop in the dollar to date has cost foreign dollar holders 600 billion. We’re not talking about chump change. A 50% drop in the dollar eradicates five trillion. The game is over, says Dr. Kurt, the U.S. consumer will capitulate in the next two to three months and stocks and the dollar are on a one-way trip down a toboggan slide.
Business profits are still deteriorating, capital investment isn’t improving, and according to him, most of the economic statistics the government feeds us are bogus. He claims the state of economic thinking in the U.S. has sunk to its lowest level ever. I told him he was the best economist in the world today and we hung up.
Finally, one of my brokers, Donn Norling, came to me with this argument. The wealth of America is trapped in retirement plans that have no investment flexibility. They hold only American paper – stocks and bonds. They can’t own precious metals, gold stocks or foreign assets. He claims it’s a trap that insures the destruction of a lot of this wealth. Since most of the plans are down by half and nobody’s making any changes, he may have a good point.