In Jim Cook's Archive

Silver Sage

“The fundamentals of silver are so bullish and compelling that I couldn’t make them up if I tried.” Theodore Butler

Exactly thirty years ago Bunker Hunt and his brother Herbert were piling into silver futures.  Their steady buying drove the price up 25 times to $50 an ounce. It all happened in a few months and then silver crashed.  Have you ever wondered what provoked the Hunts to begin accumulating silver to that extent?  My opinion is that they read the same book I did.  That book caused me to start Midwest Silver in 1972, which I changed to Investment Rarities in 1973.

I first read this book entitled, “Silver Profits in the Seventies,” in 1972.  It was written by the late Jerome Smith, a bright guy who later ran afoul of the IRS and left the country.  The book was a powerfully bullish argument for owning silver.  I’ve heard that this book caused the Hunts to move into silver.  Ultimately, the government gave them a spanking for trying to corner the silver market and they lost a fortune.

After reading the book, I began to call wealthy individuals on the phone to set up an appointment to tell them about silver.  I’d make the visit, pitch them on the future of precious metals and leave a copy of, “Silver Profits in the Seventies.”  A few agreed to buy bags of silver coins.  The bags had a face value of a $1,000 and I sold them initially for $1,200.  The risk was $200 a bag.  I’d deliver the bags personally.    Once I had a flat tire with five bags of coins in my car.  Needless to say I was worried opening the trunk alongside the freeway.

Jerome Smith’s forecast didn’t work out after 1980.  Silver didn’t do much for 20 years.  The low price made it cheap for industry to consume silver.  A lot of silver got used up.  Investment demand hardly existed.  Back then Ted Butler began to puzzle why the price stayed so low in the face of strong demand by industry and a diminished supply.  Since his background was in commodity trading he eventually uncovered the truth.  The big New York brokers, banks and insurance companies were shorting inordinate amounts of silver.  This became a glaring truth to Ted Butler when he studied information put out by the Commodity Futures Trading Commission.  Compared to any other commodity silver was totally out of kilter on the short side.

This was but one of the many revelations and discoveries by Mr. Butler.  He warned the giant gold mining company, Barrick, in writing that their gold hedge was fool-hardy and would prove disastrous.  Recently they suffered horrible dilution in order to raise the billions necessary to close out this money-draining hedge.  Butler also predicted the price increase of silver.   He scoffed at those who claimed silver would not rise.  He also named the large companies that were on the short side.  He rallied support for a silver investigation.  He forecast a great increase in the investment demand for silver.  He argued that exchange traded funds would have a profound impact on silver, calling them a death-star.  He and his friend and mentor, Izzy put the Silver Eagle on the map and predicted a shortage that soon came.

Ted Butler issued warnings about silver held at banks and brokerages.  He claimed many of these companies were charging storage fees on silver that didn’t exist.  Eventually Morgan Stanley confessed in court that this was true and claimed that everybody did it.  Butler’s amazing record spurred increased interest in silver.  Astute investors could see he was on the money.  A wave of copycats used his material to forecast silver gains.  He became widely plagiarized.  Nevertheless, he remains the original thinker who pioneered our modern knowledge of the silver market.   He is the reason we are likely to see even greater interest in silver.

The crowning glory for Mr. Butler will be if his current predictions come true.  Taken together they are the greatest assemblage of bullish factors to ever impact a commodity.  Please think about the potential price gains if and when they come to fruition.

  1. The end of the concentrated short position in the futures market. (No more shorting by the biggest short and the necessity to close out or cover the existing short position).
  2. New regulations that limit the extent of any future short selling.
  3. Continued expansion of the various silver ETF’s.
  4. Increasing industrial demand for silver from existing users.
  5. Numerous new applications for silver.
  6. A silver shortage that appears to have already started.
  7. An industrial user silver buying panic as the shortage becomes known.
  8. Skyrocketing investor demand as the silver price rises.
  9. Economic factors such as a falling dollar, deficit spending and inflation worries.
  10. The return of the historic 16 to 1 ratio of silver to gold and quite possibly a much further reduction of the ratio.
  11.  The draw down and the depletion of billions of ounces of above ground silver reserves.

It is no wonder that Mr. Butler argues that the coming price event in silver will be written about for all time.  In effect he is saying the price will rise so high that fortunes will be made.  The prices he projects are truly staggering.  However, before anyone scoffs at his prediction they need to examine his record. His accuracy and the caution and care with which he dispenses it are truly impressive.  His grasp of the subject is without peer.  This is somebody to listen to.

Forty years ago Jerome Smith was writing about silver and was recognized as an expert on the subject.  Although he was in vogue for a while he eventually faded away.  He had it figured wrong.  Ted Butler solved the riddles that perplexed Smith.  Then he built a powerful case for silver that transcended anything anybody had written previously.  His expertise and knowledge towers over any other silver commentator.  He will be the star of the coming silver story if it works out anywhere close to the way he’s so certain about.

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