TEN REASONS TO BUY SILVER NOW

By Theodore Butler

Mid-April 2009

(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.)

Amid all the recent attention I’ve placed on the continued manipulation in silver, some may mistakenly assume that diminishes the case for silver. Nothing could be further from the truth. I’m convinced that silver is a better buy than ever before. Here are detailed reasons why I believe that is the case.

One, the near-term emotional temperature of the market is low. There is no bullish "fever" where uninformed investors are driven to buy silver because of a sharply rising price. That will happen, but it’s not true now. While silver is still above the price lows of last fall and higher than year-end prices, the recent price action is nothing to write home about. The price has been below most of the important moving averages, causing silver to be "oversold." This is a much better time to buy than when prices have already climbed and many are buying just because prices are rising. At those times the risk of a sharp sell-off is high. Now the risk of a prolonged price decline is much lower. Now is the time to buy low.

Two, leveraged speculators who normally buy COMEX futures contracts and Over The Counter (OTC) derivatives do not hold a historically significant number of long contracts. The big dealers have been so successful at forcing long speculators out of the market, that the speculative long position is at important low levels. This means that long speculators have already been forced to sell and no big selling from them appears probable. On any rise in price, they are likely to buy, adding a force to rising prices. Buy before they turn into buyers.

Three, available wholesale silver inventories appear to be tight. These physical silver inventories are falling into stronger hands. For decades the world’s largest stockpiles of silver were the COMEX warehouse inventories. These COMEX inventories were considered mostly commercial in nature with some portion being held for investment purposes. The COMEX inventories peaked at around 280 million ounces in the early 1990’s, and accounted for 90% of all visible silver inventories. After the introduction of silver Exchange Traded Funds (ETFs), there was a profound shift in the location and structure of world visible silver inventories.

Now, the combined inventories in the ETFs and other investment vehicles tower over the holdings in the COMEX by almost 4 to 1. (Over 400 million ounces in the ETFs compared to 120 million oz in COMEX inventories). Given the long-term nature of ETF investment holdings, this massive and historic shift in inventory composition means much less silver is now available to the market. This will exert a strong upward influence on price.

Four, all signs indicate that physical investment demand for silver on both a retail and wholesale basis is strong and could surge further. Until a few years ago, there was no net silver investment buying for decades. That pattern has changed with a vengeance. Clearly, the introduction of the ETFs have played a major role in this investment transformation.

The strong buying that we have seen does not appear to be "hot" money, but sober and determined accumulation. It wasn’t surging prices prompting buyers over the last six months. It’s due to a growing awareness and conviction about silver’s real supply and demand fundamentals. Importantly, there has been practically no buying of silver on a leveraged or margin basis. It’s mostly been cash on the barrel. These strong silver buyers will wait for significantly higher prices before selling. With higher prices inevitable at some point, the hot-money crowd should come in and blow the doors off the price.

Five, silver production is tightening, given the byproduct-nature of silver mining. As I have written recently, base metals production like copper, lead and zinc appears to have fallen significantly, also reducing the production of silver as a byproduct.

Six, world economic and financial conditions appear lined up to favor higher silver prices, no matter what occurs. If financial conditions remain unsettled, flight to quality buying in silver appears likely. If the world does return to better economic growth patterns, silver will benefit as a result of increased industrial consumption. Heads silver benefits, tails it also benefits.

Seven, more investors than ever have come to realize that the silver market has been manipulated and the government regulators and exchange officials are unable to persuasively address the growing evidence of a silver manipulation. The manipulation debate has become widespread in metal circles. It isn’t going away. The best the regulators have been able to do is to stall and pretend to be investigating. Fewer people are being fooled by such actions. A scam like the silver manipulation can’t continue when so many know about it. This scam will end suddenly and sharply in a price jump to the upside.

Eight, industrial demand for silver will continue to grow in the years ahead. New uses for silver appear regularly. A robust worldwide economy will initiate a new phase of silver demand. Higher prices will not diminish this demand because small amounts of silver are used in each industrial application.

Reasons nine and ten, silver prices are cheap on several important objective measurements. Silver is cheap compared to its own recent price. It is down more than 40% from its highs of one year ago, in spite of the strongest physical demand in history. More investment silver has been purchased over the past year than at any other period in history. At precisely the same time that prices have declined so sharply, more ETF-type buying has occurred than ever before and more Silver Eagles have been sold by the US Mint than ever before. We have witnessed the highest premiums on all retail forms of silver in history. This isn’t just me saying silver is cheap, this is the investment world voting with its collective wallet. Clearly, there is something wrong with this picture that can only be explained by manipulation on the COMEX and the OTC market by a few giant financial institutions, led by JPMorgan.

Silver is cheap on a cost of production basis. Never have the net operating results of so many different silver miners been so poor. The common denominator is too low a price for their main product. Silver is up three-fold from the lows of a few years ago, yet the silver mining industry still suffers. That’s because the cost of production has risen faster than the price of silver. That must be rectified.

Silver is dirt cheap relative to gold. While there is less above ground silver than gold, silver’s price has rarely been this low compared to gold.

The manipulation that explains why silver is so cheap cannot exist in a bona fide physical shortage. If the price stays low, growing numbers of investors buy real silver. That makes it harder for the manipulators to keep the price contained with paper derivatives. Some fret the scam can be continued indefinitely. If it were just a question of printing more money or more paper derivatives, perhaps that might be true. But it’s not about an unlimited supply of paper silver, it’s about a limited supply that guarantees the manipulation will end soon. The termination of controls on the price of silver will be something we look back upon and marvel over how long it existed. Just make sure you are looking back while holding as much real silver as you can.

FATAL EMBRACE

By James Cook

People talk about socialism today as if it were something new for America. Actually, we’ve been going socialistic for 70 years. We’ve had an ongoing transition from capitalism to socialism. Today we are more socialistic than capitalistic. As a consequence, we are suffering from the economic failure that is part and parcel of socialism. The current economic crisis that’s frequently blamed on capitalism is in truth, a failure of socialism. Our country faces total ruin because of our fatal embrace with this collectivist creed.

A primary tenet of socialism is a government monopoly on money. They decide what the money will be. Socialists have no use for gold as money. By removing the connection to gold and creating a purely fiat money, they set the wheels in motion to destroy America’s greatness. A fiat money can be created at will by politicians and central bankers. A nation that debases its currency with fiat money signs its own death warrant. America’s failure to maintain sound money signifies the onset of national bankruptcy and loss of economic power and prestige.

Without fiat money our politicians could not spend recklessly and fund their myriad social programs. They could not run huge deficits and cover them with a printing press. Inflating and socialism are joined at the hip. Our leaders never seem to be concerned about the runaway costs of social programs, wars, bailouts and stimulus. They plow ahead seemingly oblivious to the inevitable debasement of the dollar. They are going to shove socialism down our throats, no matter what the cost.

The cost will be great. Every evil that can afflict a civilization is set in force by currency debasement. Today our leaders tell us to spend instead of save. Have you ever heard more convoluted advice? This is the philosophy of capital destruction, social turmoil and impoverishment. This is the strategy of economic know-nothings who inevitably flourish under socialism. This plan to eat the seed corn is the road to economic perdition. Be afraid!

THE STING

By Theodore Butler

(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.)

Stunning new evidence of manipulation in silver and gold has just been published by the Office of the Comptroller of the Currency (OCC), a bureau of the U.S. Treasury Department. The OCC, first established in 1863, charters, regulates and supervises all national banks. Their new data proves the manipulation in unambiguous terms. The report also confirms how the U.S. Government, in partnership with JPMorgan Chase, intentionally cheated silver investors worldwide of many billions of dollars during the fourth quarter of 2008, and longer. This was all outside the futures market I normally write about. It was a scam of historic proportions.

According to the OCC’s latest data release, U.S. banks, led by JPMorgan Chase, caused to be liquidated, under intentional duress, more than $20 billion of gold and as much as $9.5 billion of silver in Over The Counter (OTC) derivatives transactions during the fourth quarter of 2008. These derivatives are highly leveraged transactions mostly held by hedge funds and other large investors on the long side and big banks on the short side. While the OCC declares it is responsible for regulating U.S. banks, there is no regulation of these OTC derivatives by anyone. All the OCC does is compile the statistics. This was the largest amount of gold and silver derivatives ever liquidated in a single quarter in history. In the case of silver, more than 50% of all the OTC silver derivatives held by U.S. banks were liquidated in the fourth quarter. I doubt we will see such a large liquidation ever again.

In terms of ounces, this forced liquidation was the equivalent of 25 million ounces of gold and as much as 960 million ounces of silver, at the prices that prevailed during the quarter. These amounts are equal to 250,000 COMEX gold contracts and 192,000 COMEX silver contracts. Remarkably, in the case of silver, this is double the entire current total current open interest in COMEX silver futures, the largest listed and regulated silver market in the world. It is also much larger than annual mine production, total production (including recycling) and total consumption. As I hope you will see, it is not possible for such amounts to be accidentally liquidated within a three-month period. This was a very intentional liquidation.

You can view the data yourself. Here is the OCC’s Quarterly Report on Bank Derivatives Activities - http://www.occ.gov/deriv/deriv.htm The pertinent gold and silver data can be found in each quarterly report in table 9, on page 30. It will be necessary to compare different quarterly reports to measure changes in holdings. Look at totals for all maturities. Gold is broken out separately, silver is in the precious metals category. (Those that analyze this report consider silver to represent 80% to 100% of the precious metals category).

In silver, there was a decline in total precious metals derivatives from $18.7 billion on September 30th to $9.1 billion on December 31st, a reduction of $9.6 billion. Since the price of silver was 5.5% lower on December 31st than it was on September 30th, the reduction may be somewhat overstated. Since the price of silver averaged around $10 per ounce during the fourth quarter, as many as 960 million ounces of equivalent silver were liquidated. JPMorgan and HSBC accounted for 76% of the total amount liquidated.

During the fourth quarter of 2008, I was repeatedly struck by the viciousness of the sell-off in silver, as we twice plunged below $9 an ounce, down almost 60% from the highs of a year ago. I was puzzled why the manipulators had continued to force the price so low, considering that the bulk of the COMEX liquidation was over by September and October. After all, there was no evidence of physical selling of silver, as all categories and measurements of investor demand for physical silver grew during the quarter. This OCC report explains the exaggerated price sell-off completely, despite strong investor demand for silver.

Quite simply, the amount of paper silver (and gold) transacted in the OTC market dwarfed what took place in the real physical market. Further, since the OTC is so opaque, the transparent paper COMEX market was used to set the price for, and cause, the massive liquidation in the larger OTC market. The price that is disseminated from the COMEX is the price that the world goes by and prices all silver (and gold) transactions. Miners, refiners, industrial consumers, investors and paper hedge fund speculators all price off the COMEX. Control the COMEX price and you control the world of silver (and gold). Hedge funds and other large leveraged speculators holding long positions were faced with increasing margin calls as COMEX silver prices were manipulated lower and they sold to the big banks who were short and bought back their shorts. That’s why the concentrated short position is so illegal and manipulative. In fact, this same concentration exists, in spades, in the OTC market as well. Just read the OCC reports.

Further, the OCC reports prove that JPMorgan not only inherited from Bear Stearns the massive COMEX silver short position in March of 2008 (as well as a COMEX gold short position), it also inherited from Bear Stearns a much larger OTC silver and gold short position. From December 31, 2007 to March 30, 2008, JPMorgan’s OTC silver short position grew from $4.9 billion to $12.5 billion. Adjusting for the 16% price increase in silver between those dates, JPMorgan’s silver short position grew by more than 400 million ounces to as much as 735 million ounces, from 335 million ounces. This is separate and distinct from and in addition to their COMEX silver short position.

I know these numbers are shocking. Such a large and concentrated short position, on both the COMEX and in the OTC market should explain the motive and stakes involved in the great silver flush out of 2008. This silver short position needed to be reduced by any means necessary, due to the unthinkable exposure that would exist if it were not closed out. But so large was this short exposure that while JPM succeeded in reducing its short silver exposure from the highest level in its history when it took over Bear Stearns, to the lowest level in three years, there still exists a silver short exposure of hundreds of millions of ounces.

That the U.S. Government has aided and abetted JPMorgan in this illegal endeavor you should find as repugnant as I do. U.S. Government agencies, like the Treasury Department and the CFTC are the ones publishing this data. The Treasury Department and the Federal Reserve arranged the JPMorgan/Bear Stearns takeover. How could they not have sanctioned this historic silver liquidation? It is sickening. Officials should go to jail over this.

All this should reinforce the message to buy real silver. That such blatant and illegal efforts are being made to force investors to sell paper silver, should convince to buy and hold real silver while you can. That they have forced this much silver liquidation should give you a sense of just how valuable silver is, and to what price levels they expect it to climb to.

Take a look at a You-Tube video that an inventive reader from Australia, John Christian, created, using Izzy’s last article. I think you’ll enjoy "The Silver War Cry"

http://www.youtube.com/watch?v=FywT-txGuss

WIDENING DEFICITS

"The U.S. government needs to roll over $2,596 billion of outstanding Treasury bills and notes coming due in 2009 before it can add any new borrowing to finance the expected deficit. In previous years, foreign investors have invested most of their trade surpluses – to the tune of $200 billion to $500 billion per year – in Treasuries and agency debt. We cannot expect this trend to continue as we go forward, especially given that China, Japan, and the Middle East are experiencing a sharp decline in their exports and have indicated that they will have to support their own economies with massive stimulus packages. These actions will further reduce their propensity to buy U.S. debt…..

Assuming that foreign investments will not represent a large source of financing for the $4 trillion plus of U.S. Treasuries our government needs to sell this year, we will be forced to rely on domestic institutional and private investors….

In the absence of sizeable increases in tax revenues, it is quite clear that the lion’s share of the planned sales of Treasuries in 2009 cannot be met by demand from the market. Either the Treasury will have to raise interest rates significantly, or the Fed will need to step in very aggressively to support the planned auctions. Our expectation is that both will happen. Auctions will fail and the Fed will step in. The market will react to more printing by anticipating inflation and demanding higher interest rates. Once the cycle starts, it will be very hard to pull interest rates back.

We continue to stand by our December forecast that the 2009 budget deficit is more likely to widen to levels between $2.5 and $3 trillion rather than the CBO’s $1.8 billion forecast. We also believe that inflation could start setting in as early as Q3 of 2009 and will accelerate sharply by 2010. Treasury rates will start climbing and the era of cheap money will end, making it harder for overleveraged consumers, businesses, and governments to service their debt.

Monetary devaluation will be the only way for the U.S. government to shift the cost of irresponsible spending into the future. Our politicians are betting on the fact that this will happen after the next elections, thereby allowing them to continue to blame others for their reckless stewardship of the economy."

Oliver Garret, CEO Casey Research

TAXING

By James Cook

The new administration emphasizes fairness. If you’ve worked hard all your life and have finally started to make some money, you are going to pay more taxes. Some of this money will be passed out to people sitting on a porch. You can be sure they will think it’s fair. You, however, may not agree.

Ayn Rand would have asked the porch sitters: What is your moral right to the earnings of others? Of course, there is no moral right, and there’s nothing fair about it either. What’s more, there’s a lot of damage that goes with high taxes. The great economist Ludwig von Mises made these fitting comments:

"Progressive taxation on income and profits means that precisely those parts of the income which people would have saved and invested are taxed away."

"If the present tax rates had been in effect from the beginning of our century, many who are millionaires today would live under more modest circumstances. But all those new branches of industry which supply the masses with articles unheard of before would operate, if at all, on a much smaller scale, and their products would be beyond the reach of the common man."

People who want to improve the country through high taxes are taking a page out of the Marxist playbook. It’s not so much they want to save the country as to rule the country. Their views are rooted in envy coupled with an abysmal lack of understanding about how capitalism works to benefit the masses. Their minds have been poisoned against capitalism by the impractical nonsense of leftist professors and intellectuals who never had the guts to venture out. High taxes are just another milepost on the road to ruin. We are doing all the wrong things to foster prosperity. It’s more than tragic.

INTERVIEW WITH TED BUTLER

Hello World – From beautiful Vancouver, Canada – I’m Nick Nicolaas and this is Mining Interactive Media.

Friends, ‘knowledge is power’, and that is why we are here. Our goal today is to enlighten our investor friends as much as we can.

Everything we bring to you is based on discussions and interviews with visionaries, who base their opinions on thorough research critical thinking, and fact-based analysis such as our guest here today direct from Florida, Mr. Ted Butler.