In Jim Cook's Archive


I’ve been in the gold and silver business for thirty-five years. I started out calling company presidents, trying to get an appointment to sell them silver. When I’d get a rare sale I’d deliver it myself, sometimes lugging bags of silver up two flights of stairs. Once I got a flat tire on the freeway with six bags of silver in my trunk. I changed that tire in a hurry. In 1973 I made a measly $3,000 selling silver and gold. I lived off my savings.

I read every economic treatise on sound money. I learned everything I could about gold and silver. Twenty-eight years later I met Ted Butler. At the time, I thought I knew everything there was to know about silver. In reality, I knew next to nothing about silver. I knew what the Silver Institute and the Silver Users said. I knew what the so-called silver analysts at the big Wall Street firms had to say. (They’re still saying the same dumb things today.)

Ted instructed me on how important the COMEX was in determining the price. Everything else was background noise. The London market, the Asian market and the after-hours market were essentially meaningless. When gold hit $700 the other day on the COMEX, I read where various newsletter writers and others were saying that people were pouring into gold because of economic concerns. Sorry. Trying to sell gold these days is like pulling teeth. I read that the Chinese and India were going to buy big quantities of gold. As if the Asians would put out a press release that they were going to be buying gold. Inscrutable indeed. It’s never what you hear it is that influences price. It’s big hedge funds, mining speculators and dealers on the COMEX.

In 1980, when silver soared to $50 an ounce, I made a lot of money melting down silverware. The Hunt brothers were primarily responsible for that dramatic price rise. When silver hit $50 an ounce, the big shorts of that period were in huge trouble. Rumors of major bankruptcies circulated. Somehow these dealers got the exchange to intervene on their behalf. The exchange ruled that you could no longer buy silver, you could only sell it. The shorts were back in the driver’s seat. Since you couldn’t buy, the price could only go down. Silver collapsed.

The authorities went after the Hunt brothers. I could never figure out why. Apparently their aggressive buying was deemed a manipulation. They had a few associates also buying. The amount of silver they were long is less than the amount held short today for the four or less big traders. Ted Butler has claimed this is a selective application of the law. You get treated differently if you are a commodities exchange member than an outsider. It appears the big silver shorts can impact the price at will. Supposedly they’re not suppose to be a market maker in what is an open outcry market. But, when prices head down, the entities with huge controlling positions only need refuse to buy, or lower their bids, and the price drops accordingly. That’s why concentration is illegal.

Let’s say you bought a futures contract for 5,000 ounces at $12.00. You put up $10,000 for one contract and the balance is financed. You buy another 5,000-ounce contract at $14.00. Silver rises to $15.00. You have a $20,000 profit. The price starts to slide on an overall drop in commodities. Soon silver is back to $12.00. You get a margin call and put up another $10,000. Now silver crashes to $11.00 where you have a stop loss order. You’re sold out. The buyer of your contracts is one of the big shorts. Now they have a $20,000 profit. They also have reduced their short position by buying your contracts back. This is how they profit and how they extricate themselves from an overly large short position. Precipitous drops like the recent plunge to $11.00 smell to high heaven. What kind of trading advantage do you have if you can influence the price?

Ted Butler has argued that the short position is concentrated, manipulative and illegal. He suggests it’s become too big to offset without a massive price spike. He has focused attention on so many different aspects of the silver market as to be a silver genius. Meanwhile, the establishment trots out the same old dreary silver expert to cover their butts and say what they want to hear. To think we used to listen to guys like this.

I’ve learned virtually everything I know about silver from Ted Butler. So has everybody else writing or talking about silver. There’s one difference. I give him all the credit in the world. Others will write a lengthy epistle about silver full of revelations that were first mentioned by Ted. Yet, that article will never acknowledge him. It’s amazing.

How’s the big paper caper in silver going to end? If the shorts cover, silver will skyrocket. Ted Butler is putting pressure on individual shorts once again. He did in once before with AIG. If a big short covers, it could be explosive. However, the ultimate answer is a physical shortage. Ted Butler says we’re close to that. Physical silver will eventually trump the paper market. When it does, I’m betting Mr. Butler is right when he says the silver price will overheat.

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