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By Theodore Butler

(The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

The fundamentals in the silver market continue to be strong. Within the past month or so, both major recognized statistical compilers, CPM Group and Goldfield Mineral Services, confirmed a substantial deficit for 2001 and a larger projected deficit for 2002. Therefore, existing world silver inventories continue to be depleted at a rapid rate, to the lowest documented levels in hundreds of years. Base metals’ production has leveled off, due to large inventories of copper, lead and zinc, promising stagnant production for byproduct silver, the largest category of silver mining. Gold production is forecasted to level off and decline, further inhibiting byproduct silver production.

On the demand side, all indicators are flashing green. While stock markets seem shaky, silver industrial demand appears to have bottomed out. Let’s face it – if silver has remained in a deficit consumption pattern in an economy that has suffered the blows of the past year, it is likely to remain in deficit for the foreseeable future. As I have written previously, there can be no more bullish state for any commodity than to be in a deficit. In addition, there seems to be a growing realization that the digital photographic revolution will not adversely impact consumption of silver in the foreseeable future. New and unanticipated uses for silver, particularly in health care and bacteria fighting develop almost daily.

Silver investment demand remains strong and recently appears to have accelerated. The Central Fund of Canada, a closed-end mutual fund which holds physical gold and silver twice this year increased the amount of metal they hold. In all, 6 million ounces of silver have been added to the fund so far this year, approximately doubling their silver holdings from year-end levels. This is silver taken off the market that was not contemplated six months ago.

Additionally, sales of Silver Eagles by the US Mint continue their blistering sales pace. Not many people realize just how strong Silver Eagle sales have been, particularly when compared to Gold Eagle sales. I think it’s instructive to make the comparison between Silver and Gold Eagle sales, because it equalizes extraneous factors, like currency and monetary considerations. The US Mint ( keeps full year and monthly sales for Eagle bullion coins from the year 1992 through the present (the program began in 1986). From 1992 through the end of 1999 (encompassing the Y2K buying binge), Silver Eagles outsold Gold Eagles by a little less than 6.5 times (on an ounce basis, not on a money basis, as gold was and is generally 70 times more expensive than silver). But, from the beginning of 2000, through the end of May, 2002, Silver Eagle sales jumped to more than 40 times Gold Eagle sales, a 6-fold increase. From the beginning of 2002, through May 2002, Silver Eagle sales have soared to 88 times Gold Eagle sales. Clearly, investment demand for silver is increasing markedly and noticeably.

The bullish engine for silver is hitting on all cylinders – strong industrial demand, stagnant production, large and growing deficits. Throw in new and growing investment demand, and the engine of demand becomes super turbocharged. To have more bullish data is hard to imagine. Yet the price doesn’t reflect this condition. While it’s nice to see that silver briefly nudged its head above $5, after being below that level for more than a year and a half, $5 is a sick joke in terms of a free market price for silver. It’s a great buy because of the low price caused by the manipulation by leasing and short selling.

I have confined most of my analysis to reasons why you should take advantage of the artificially depressed price of silver, and take the logical next step of buying real silver. That logic applies more than ever. With the passage of time, the deficit’s grinding depletion of existing inventories becomes the silver investor’s best friend. That grinding depletion of inventories guarantees a price rise of historic proportions, once the real move commences. I have always taken comfort in knowing that the artificially depressed price of silver had wrung just about all the real risk to the downside. My imploring folks to buy real silver couldn’t possibly cause them severe financial damage. After witnessing the parade of stocks that have declined 80 and 90%, in the time I have been advocating real silver, it’s good to know that silver can’t decline by similar amounts, and that is more comforting than ever.

But man doesn’t live by investment alone. Sometimes, an investment transforms itself into something else. A higher calling, perhaps. An intellectual pursuit. That’s how I view my experience with silver. It’s not just a great investment to me. It’s something much more. That doesn’t mean it has to be something much more than an investment for anyone else, I’m just speaking for myself.

One of the things that silver has come to mean to me is the real life lesson it has taught me on the difference between free markets and manipulated markets. I mean, these concepts are somewhat theoretical, unless you have the occasion to actually witness a manipulated market in process. I can tell you that this has been an absolutely fascinating process to observe. I feel blessed that I have been able to record and describe my thoughts about this process. Additionally, I have been fortunate to be able to try and correct the manipulated condition of the silver market.

That leads me to the title and purpose of this piece. Many of you know that I have petitioned various government agencies and regulators over the past 15 years to end the manipulation in silver.

Starting in February of this year, I started writing to the Chairman of the Commodity Futures Trading Commission (CFTC), concerning the concentrated and uneconomic short position on the Commodity Exchange, Inc (COMEX), the largest precious metals exchange in the world. The documentation for my allegations come from a report that the CFTC releases weekly, the Commitment of Traders Report (COT). I have previously written an article explaining my views on the COT (, so I’ll get right to the point on why I’m writing to the CFTC so much this year.

A generally overlooked aspect of each COT is the section on concentration ratios. Concentration ratios are kept, in the first place, as a tool for the CFTC to use to spot manipulation. If one, or a small group of traders, establishes too large of a position in any market, it may exert undue influence on the price of a commodity. That is certainly logical, as manipulation is basically nothing more than one, or a few traders, rigging a price with big positions. And that is the gist of my allegation to the CFTC, a tiny number of traders are net short an incredibly large amount of silver. How few and how large? Well, as my most current letter to the CFTC states, four or less traders (remember, this may mean only one or two) are short almost 250 million ounces. Eight or less traders are short almost 350 million ounces of silver. As you should be aware of by now, there is not more than 125 million ounces of verifiable silver in the whole world. That means this huge short position is unbacked, and unbackable, with real silver. That means the short position exists for only one purpose – to artificially depress the price. Which it is doing.

The only response I have received from the CFTC so far (and I have sent ten letters), is an acknowledgement, on April 12, that my allegation, “would potential involve violations of CFTC and Exchange rules pertaining to price manipulation.” That tells me that the CFTC is taking my allegation seriously, and is looking into it. Unfortunately, that process is slow, and behind closed doors. In the meantime, the market remains manipulated. That is intolerable to me. It should be to you also. Please be clear on my intentions. I am only looking for open debate and discussion on this issue. That means full disclosure and transparency. Privately, the big short traders are telling the CFTC why their shorts are not manipulative shorts. They are concocting stories how their short sales are merely offsetting hedging by foreign silver mining companies. I think I can demolish the shorts’ arguments with logic and common sense if I am given the opportunity. That is the key, to drag this issue out in the open where the crooked shorts don’t want it.

So I am asking you to do something to get this issue fully and fairly debated. I want you to write to your elected officials and to the CFTC, demanding that the CFTC debate this issue openly. If the CFTC doesn’t think there is a problem with such historically large net short positions, let them say why. If they do sense a problem, let them address that. It is not right for me to continue to make public accusations, if I am off base. It is time to decide if there’s something wrong on the COMEX, or not. It is a time for action.

These same short traders play the same game in the gold and copper markets on the COMEX. But I don’t write about that, because while the number of short contracts these same traders hold are historically large and manipulative, they don’t translate into the equivalent amounts that exist in silver. It is just preposterous for such a small number of traders to be net short more than all the known silver in the world. If you agree, take some action and write a few letters. E-mail is not as effective as a printed letter, but please send a fax. The Chairman of the CFTC, James E. Newsome’s fax number is 202 418 5533. Good luck.

June 10, 2002

The Honorable James E. Newsome
Commodity Futures Trading Commission VIA FAX and E-MAIL
Three Lafayette Centre
1155 21st Street, NW
Washington DC 20581

Dear Chairman Newsome;

The manipulation of silver by the handful of short traders on the Commodity Exchange, Inc. (COMEX) continues unabated. The evidence, issued by your own agency, week after week, could not possibly be clearer.

Your Commitment of Traders Report, released June 7, 2002, for positions held as of June 4, show the concentration of net short positions in both categories have reached all-time extremes. The 4 or less largest traders category (meaning 1 trader to maximum 4) indicates a net short position of over 248 million ounces. The 8 or less largest traders are now net short over 346 million ounces. They still control near 50% and 70% of the market, respectively. These are shocking and uneconomic quantities, whose only purpose is to cap any price rise in silver, and then drive it lower. It is clear that they will succeed again, because there is no restriction to their manipulative short sales. This is against every principle of our commodity law.

It is disgusting to witness this continuous illegal behavior. These activities, motivated only by greed, make a mockery of your agency and the law itself. These short traders can’t justify their paper sales with real silver, yet they are allowed to short whatever amounts are necessary to depress the price. They are laughing all the way to the bank. Thousands of market participants are held hostage and are literally being robbed, by the illegal activities of the few. It is up to you to end this scam.

The day will come when we will all witness the results of the long-term silver manipulation by these very few COMEX silver traders – market emergencies, disorderly pricing, shortages and defaults. Why wait for that day before moving against them?

Respectfully yours,
Ted Butler

This is a serious matter and I don’t want to follow it with a lot of arguments as to why you should own silver now. But I think one thing must be said. If the CFTC curbs the big silver traders, it will make a dramatic difference in the silver market. It will change it forever. It will end their price-capping ability and allow the free market to work. That’s the best possible scenario for anyone who owns silver.

This is an issue that can attract the attention of the media. Eventually, if it’s not corrected, the newspapers and the TV will investigate and have a field day. This could be an explosive scandal. The silver manipulation will end sooner or later. It’s important to own silver before it does.

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