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By James R. Cook

Another exchange of letters took place recently between Neal Wolkoff, Operating Officer of the COMEX and Ted Butler. We lifted the following paragraph from Mr. Wolkoff’s letter:

“Cutting to the chase, I have found no evidence to support a finding, or even a reasonable belief, that the silver market is being manipulated. Publicly available facts pertaining to supply and demand are ample in justifying my conclusion. In addition, a review of customer positions at NYMEX/COMEX and their physical silver holdings supports a conclusion that the market participants, including the largest four, who you have repeatedly accused of being market manipulators, operate competitively and maintain positions for sound commercial reasons. In other words, your allegations are baseless, without merit, and incompatible with the facts.”

We took a paragraph from Mr. Butler’s letter that responded to this statement:

“No matter how compelling any evidence I may present to prove such a manipulation exists, you would have to deny it. For you to admit that there was a silver manipulation, would result in almost certain and monumental criminal and civil litigation. That is why I didn’t ask you if there was a manipulation in COMEX silver, because I knew how you would have to answer. Instead, I made some very specific observations about the lack of legitimate speculative position limits in silver, and the obvious unbacked manipulative net short sale of 260 million ounces by the four or less traders, and the 350 million ounces sold net naked short by the eight or less largest traders. Here, you were evasive.”

Mr. Wolkoff also said the following:

“As you know, the law prohibits me from disclosing the identity of market participants. However, you should be aware that we consistently survey the large market participants and report all of our findings to the CFTC. Based on our oversight, there is no evidence of any rule violations among large traders. A very substantial percentage of their aggregate short positions are covered by physical holdings. There is no common corporate relationship among the four, and their conduct appears to reflect their respective and individual business needs and market views. In sum, there is no evidence of conspiracy among the four, or other manipulative conduct by any one of them.”

Mr. Butler countered with the following paragraph:

“Regarding your defense of the concentrated shorts, you stated, “A very substantial percentage of their aggregate short positions are covered by physical holdings.” Since this goes to the heart of the matter, in that my allegation claims that they can’t possibly be backed by physical holdings, perhaps you might allow me to offer a simple solution. Inasmuch as you can’t legally divulge the identity of these traders publicly, why not just publicly prove that the silver in question does, in fact, exist. No one would have to know who owns this silver, just that it exists and could potentially be what the short sales are based upon.

“Seeing as there are roughly 110 million ounces in the COMEX warehouses, and we know that the big shorts don’t own more than roughly 20 million ounces of that total, all you would have to verify is that 330 million ounces of physical holdings exist separate from the COMEX inventories. For the sake of argument we’ll assume in advance that the eight or less traders control that silver. Document this silver exists, and the matter will be closed.

“I’ve made it simple for you – just show us the silver (330 million ounces) that backed the eight or less traders net short position and explain why speculators should be allowed to trade with no legitimate position limit.

Mr. Wolkoff also tried to make the case for a stable silver price.

“There may well be figures and statistics to suggest future optimism for rising prices, and I express no view on where prices should be, tomorrow or in the future. The purpose of this discussion is to counter your assertion that price levels are now artificial, i.e. manipulated. The fundamentals as of the end of 2001 paint a picture of restrained demand and ample supply. In the ensuing seven or eight months so far this year, the economy has not boomed forward, and silver prices have remained fairly stable.”

Mr. Butler jumped on that.

“In 1980, silver hit over $50, due to a manipulation by a few large traders. There was no silver shortage. Today, 22 years later, the world has since depleted inventories by over 2 billion ounces, and we face a certain worldwide shortage, guaranteed by the documented structural deficit. The world, and the US Government, has less above ground inventory than in hundreds of years. Ask your economists, if silver could go to $50 with no shortage, how many times $50 could it go in a genuine shortage with depleted inventories?

“The sad truth is that there is not much you can do to rectify the situation. It’s too late, as the damage has already been done. The artificial low price has drained vital inventories, by encouraging consumption and discouraging production, over what would have occurred with a true free market price. The time to have acted was years ago, as I warned the COMEX repeatedly. I think more and more people can see this, and that is why there is such strong growing demand for real silver by small investors.”

Mr. Butler also said this.

“- this was the twelfth consecutive year of a substantial deficit between current silver production and consumption. This fact….. proves beyond a doubt that the silver market is manipulated because it is impossible, in a free market, for prices not to rise strongly with a deficit lasting so long. Let me underscore that word – impossible. The only way this aberration to the most basic law of supply and demand could occur is if there was a manipulation. A commodity can not be in a more bullish state, than to be in a deficit between current production and current consumption.”

We asked Ted Butler to give us his latest views on this debate with Mr. Wolkoff.

“I have asked some very specific questions of the CFTC and the COMEX, concerning speculative position limits and what was backing the 4 and 8 or less traders massive net short position in silver. It is clear to me that both organizations evaded any semblence of a direct and specific response. Instead, both repeated the mantra that there was no manipulation in silver. I hope I’ve explained sufficiently how this is something they had to say, as the alternative would be too messy.

“I’m gratified that so many people took the time to write to the CFTC. The timing of the response from the CFTC and the unsolicited responses from the COMEX, by Neal Wolkoff, wouldn’t have come without this effort.

“If the dealers on the COMEX, particularly the four and eight or less large traders, increase their net short position on the next silver rally, then the CFTC has not done its job, and has allowed the manipulation to continue. In that event, we should contact them again.

“Since we haven’t had a rally in silver to confirm whether the manipulation would remain in force, there’s been no reason to comlain just yet. But make no mistake, this is the key to near-term pricing in silver. If the concentrated shorts flaunt the law and short heavily on the next rally of twenty five cents or more, the manipulation lives. If they don’t short, the free market lives and silver soars.”

We also asked him for his current assessment of the silver market.

“The silver market looks encouraging. There has been a net reduction in the commercial’s net short position by 46,000 contracts, or 230 million ounces. The four or less traders have reduced their net short position by 100 million ounces (eight or less by 125 million). The commercials made over $100 million on the decline. This is the reason for the manipulation – big bucks and greed. Now that there has been this intended reduction of the dealers’ short position, the waters are safer than they’ve been for a long while.”

Mr. Butler also commented on an interesting new silver story

“An Internet friend of mine from Canada, e-mailed me a few weeks ago about an experience he had. It seems something prompted him to go to the local shopping mall, and test the sterling silver jewelry (mostly chains) on display in various stores with a magnet. To his surprise a significant percentage of the “sterling” proved magnetic. This, of course, should not be, as neither silver, which makes up 92.5% of sterling, nor copper, which makes up 7.5%, traditionally, of sterling silver, are magnetic. Subsequently, my friend’s experience prompted people all over the country to do their own tests, and the results were similar, indicating a potential widespread problem. The conclusion of most involved indicates that plated silver jewelry is being passed off as sterling. It appears that this is not a decades-old problem, but something that has evolved in the past few years, as jewelry produced years ago passes the magnetic test.

“This is a story that could get “legs”, and have an effect on silver prices. Please keep in mind that about 30% of world silver demand, some 300 million ounces a year, is consumed in the jewelry/sterling ware category. How much is phoney sterling is hard to tell, but the potential is huge. Some say it might be bearish, as it might discourage folks from buying sterling altogether, but I don’t think so. I think it will make people more aware and encourage them to buy real sterling, as they have for hundreds of years. And, if there is restocking of inventories by the large retailers and jewelers, to replace plated junk with real sterling, watch out to the upside. It’s speculation on my part, but this could be a big story. Time will tell.”



Below we’ve listed thirty-five solid reasons to buy silver. Each one represents a powerful and convincing argument. Taken together, they make a case for silver that may well transcend any previous historical opportunity for profit.

For now, we’re not thinking about any other reason to own silver than to make a lot of money. That’s the reality here, a chance to rack up some truly big profits. There’s no guarantees of course, but the seemingly tiny risk at five dollars an ounce and the huge upside potential makes silver a bet that makes sense.

  1. There is a chronic shortage of silver in the world.
  2. Silver has tremendous industrial demand.
  3. Silver is known and wanted around the world.
  4. New uses for silver are expanding rapidly.
  5. Silver production from mining is stagnant.
  6. Silver has become crucial to technology.
  7. Investor demand for silver has started to grow dramatically.
  8. Industry may have to stock up on silver as the price begins to rise.
  9. A fall in base metal production will mean less silver as a byproduct.
  10. It takes years to ramp up silver mining production.
  11. The U.S. government is now a direct buyer of silver for its coin program.
  12. Increased defense spending means more demand for silver.
  13. Silver has been leased out in quantity and then used up so the silver that goes to pay back the lease must come from newly mined silver that industry is counting on for itself.
  14. Only a limited amount of silver is left in the above-ground supply.
  15. Silver has excellent liquidity and will always have a cash value.
  16. Silver is 98% below its inflation-adjusted high price of twenty years ago.
  17. Silver has limited downside and tremendous upside potential.
  18. Silver has unique properties possessed by no other asset.
  19. Silver requires no time and no maintenance.
  20. Silver can be owned in size.
  21. Annual silver demand far exceeds the annual current production.
  22. The above-ground supply of silver shrinks dramatically each year.
  23. Silver appears to be a sensible and prudent diversification.
  24. Silver can’t go bankrupt.
  25. The risk reward ratio for silver appears extremely good.
  26. Silver can be caught in short squeeze of great magnitude.
  27. Warren Buffet bought a large quantity of silver.
  28. There is less known silver inventories in the world than gold.
  29. Historically, silver acts as a hedge against inflation.
  30. A possibility exists of a world-wide flight into hard assets.
  31. Silver is historically cheap.
  32. Most of the silver ever mined in the past 5,000 years is used up and gone.
  33. Silver offsets monetary and currency upheaval.
  34. People tend to buy physical silver rather than silver mining shares because there are no pure silver producers of magnitude.
  35. There has been a deficit in the amount of silver produced and the amount used for a dozen consecutive years.

If you took the time to write down all the reasons to buy stock, bonds or real estate, it’s likely your combined list wouldn’t be as long as this silver list. The more you study and examine the silver story, the better it seems to get.




Nothing else combines strength with a softness that allows it to be formed and stretched. Nothing else is so conductive of electricity, malleable, fatigue resistant, wettable and corrosion resistant. Nothing else has such high tensile strength, is wear resistant, has such a long functional life or is as light sensitive. Silver endures temperature extremes, conducts heat, reflects light, provides catalytic action, is bactericidal and reduces friction. It alloys, has chemical stability and low polymer formation. Furthermore, silver’s great beauty makes it perfect for silverware, artifacts, bars and coins. It’s precious nature and desirability caused it to be a perfect commodity money, and a prized asset for hoarding, collecting and investing.

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