In Ted Butler's Archive

By Israel Friedman
January 26, 2011

(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades. He has written articles for us in the past. Investment Rarities does not necessarily endorse these views.)
I have a different opinion on position limits for silver than my good friend Ted Butler. For sure I know he is correct that the price is manipulated by the big short sellers, and that a fair limit of 1500 contracts evenly applied to all COMEX traders with no exceptions would end the manipulation. But it has always been my opinion that the regulators would never install those limits. Why? Simple – they know that by enacting those limits the price of silver would fly to the sky and that the CFTC would be blamed.

Many people are upset that the regulators are proposing the position limit of more than 5,000 contracts for silver, as 25 million ounces is a crazy high amount for any speculator to hold. But I am happy that the CFTC won’t install a limit of 1500 contracts. Why? Also simple – by not installing the right limit, it will cause the physical shortage to come sooner to silver. When the shortage comes to silver, the tables will be turned upside down. Then the big shorts and the CME will blame the CFTC for not making them reduce their short positions before the shortage arrived. The silver investors will be dancing in the streets, delirious with joy.

The CFTC and CME directors, and the naked shorts, and the users don’t understand how a shortage in silver will look. How could they, as we’ve never seen a silver shortage before? But they will learn quickly. First, any naked short will be bankrupt. Also the users will pay any price not to close their production line. The shortage will change everything. If the CFTC wants to ask something of the CME directors, it should be what plans does the CME have when a shortage comes to silver.

In a market like silver, used all over the world, the shortage creeps in slowly. The first reports of shortage are dismissed as temporary. But things progress and it becomes impossible to secure adequate supplies of material. Then in an instant, enough people realize the true condition and denials are suddenly cast aside. Everyone panics to rush to buy, investors and users alike. Then all that will matter is getting real silver, not paper contracts.
The best thing about what has happened over the past ten years is that it has been the small investor who has been buying all the silver. The big guys have concentrated on buying gold. Let them. Because the little guy has been buying silver it means that silver is in very strong hands. The little guys are like an army of ants and it’s impossible to force all of them to sell until they get the price they want. This is the first time in history that the little guys have out-foxed the big guys. Not only have the big guys not bought silver, the biggest of them have actually sold it short. But don’t think that the same big guys won’t buy silver, as they will – but only when the price goes over $100.

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