In Ted Butler's Archive

Proving The Silver Manipulation Again

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

Over the past ten years, I have argued that silver has been manipulated in price. One of my goals for writing publicly about silver was to terminate this manipulation. While I know that many people can’t understand my obsession with the manipulation, I make no apologies for my convictions. There is nothing more basic or important than keeping a market free of manipulation. This is the cornerstone of our market economy.

Unfortunately, I have not been able to convince the Commodity Futures Trading Commission (CFTC), that large commercial interests manipulate the silver market. Long-term readers know how many different avenues I have taken to expose and terminate the manipulation. Many of you have participated in a number of the campaigns. For that, I am grateful.

Even though prices have increased significantly from the low levels of years past, it is still obvious to me that silver remains a manipulated market. I have recently discovered what I feel is compelling new proof of that manipulation. The intent of this essay is to convince the CFTC and get them to act against the manipulator. The short position of the four or less traders (possibly just one trader) has become so lopsided and out of balance that it cries out to be addressed by the regulators.

The CFTC’s most important responsibility is to prevent market manipulation. In order for the CFTC to satisfy this mandate, they are given a large taxpayer-funded budget and employ a large staff. In order to prevent manipulation, the CFTC relies on many different tools. These include speculative position limits, large trader reporting requirements, and various market oversight and surveillance techniques.

For there to be a manipulation of any kind, it must involve only a few participants, or even a single entity. By definition, great numbers of participants can’t possibly bring about a manipulation. There must be a concentrated, large position in order to have manipulation. Because of this, the CFTC monitors the concentrated positions of the largest traders in every market that it oversees. It publishes the concentration ratios of the largest 4 and 8 or less traders in every commodity futures contract, every week, when it reports these concentration ratios in the long form Commitment of Traders Report (COT).

This is the source data, which I claim proves that silver is manipulated. The very data that is maintained and published by the CFTC to monitor and prevent manipulation is what proves the manipulation. It also proves that the CFTC doesn’t even bother to analyze the data it monitors and publishes. According to the COT, for positions as of May 30, 2006, the 4 or less large traders in COMEX silver have a net short position that is more concentrated than at any time in history. It is far more lopsided in concentrated shorts compared to concentrated longs than any other major market. This short position is not only 3.5 times greater than the concentrated net position of the 4 or less largest long traders, it is also more concentrated and larger than any position held by the Hunt Brothers in the great silver manipulation of 1980.

The actual numbers state that the 4 or less largest traders are net short the equivalent of 181,584,000 ounces, while the 4 or less largest traders are net long 52,506,000 ounces, To put this short amount into perspective, it is more than is produced annually on the largest silver producing continent, North America (Mexico, US and Canada). It’s larger than the combined total holdings in the COMEX warehouses and the silver ETF (SLV). The concentrated net short position is staggering in size.

Does an extremely large and concentrated position automatically mean a market is manipulated? Not necessarily, even though you can’t have a manipulation without a concentrated position. But once you establish that a large, concentrated position exists, allegations of manipulation cannot be summarily dismissed. The situation must be examined with a higher level of regulatory scrutiny than as if there were no concentrated position. If there are other clues that suggest manipulation, then the regulators should be on red alert. I think those clues exist for anyone who takes an objective look. Start with the fact that COMEX silver has always had the largest short position relative to real world production and inventory. Then ask, why did the price remain comatose for decades while the market was in a clear documented deficit? In other words, what overrode the law of supply and demand?

Another big clue is the silver price action itself. Because the shorts are more concentrated (and the longs less concentrated) in COMEX silver than in any other market, the price declines are always more dramatic than the price advances. Contrary to all the talk one hears about silver being in a bubble and run up in price by speculators and hedge funds, the undeniable evidence proves that it is the shorts with the largest concentrated position. It is easy for the shorts to collude and pull bids because there are so few of them. The longs are spread out and operate independently of each other, just as it should be. The shorts are cohesive and all read from the same playbook, in defiance of commodity law.

Generally, the concentrated net long and net short positions of the largest traders are comparable. In the majority of markets, the position of the longs is equal to or larger than that of the shorts. These markets include wheat, corn, and soybeans, 3-month Euros, 2-year, 5-year and 10-year notes, 30-year bonds, some stock indices, hogs, cattle, cotton, and coffee, heating oil, crude oil, natural gas and gasoline. This appears normal, as legitimate and opposing economic requirements lead to rough balance between the largest traders in every market. But that’s not the case with silver.

In the silver market, the concentrated short position towers over the concentrated long position to an extent not found anywhere. What can we say about this extreme condition in silver? Well, for starters, since you have to have concentration to have a manipulation, no one can dare suggest that silver is manipulated to the upside. However, on the short side, the unusual and extreme concentration makes a downward manipulation, not just possible, but probable.

Turn this situation around and imagine that the extreme concentration in silver was on the long side. The regulators would be all over a concentrated futures long position of 180 million ounces, just like they were with the Hunts in 1980. The regulators at the CFTC and the NYMEX know that commodity law does not favor the shorts over the longs. So why do the regulators allow this?

Furthermore, this concentrated short position appears to be naked. If so, it can result in delivery default problems. Just last week, Commissioner Hatfield was warning the Silver Users Association about the supply of silver, due to the silver ETF, and nationalization fears in Latin America. Is the Commissioner aware of this concentrated short position? Will he or the CFTC or the COMEX guarantee there will be no problems in delivery or pricing because of it?

To make matters potentially much worse, the term “4 or less” is intentionally vague enough to hide the fact that one trader may hold the lion’s share of the 180 million ounces. In my opinion, the largest single trader holds more than 100 million ounces. This is equal to what the Hunts held in 1980. Because it is short position, it is potentially more disruptive than a concentrated long.

The remarkable thing about the concentrated short position in COMEX silver is that it has emerged even as the total dealer short position has been reduced. This phenomenon is what directed me towards the extreme level of concentration. In other words, while all the dealers are closing out short positions, the very biggest trader(s) is becoming more isolated and makes up the highest percentage of total dealer net shorts ever, around 75% of the total commercial net short position. What percentage does it have to reach before the CFTC reacts?

This is what makes the manipulation so obvious. Against a widely dispersed long position, the short position is more concentrated than ever. The CFTC maintains and publishes the concentration ratios for a reason. That reason is not to give me something to write about. The reason is to prevent manipulation. I think it is time for the CFTC to analyze and act on their own data.

I am sending this article to the new chairmen of the CFTC and the NYMEX/COMEX, with a cover letter asking that they look into and respond to this issue. Generally speaking, there is a better chance of a timely response if many people contact them. If you do decide to contact them, please feel free to send my article.

The Honorable Reuben Jeffery III


Commodity Futures Trading Commission

Three Lafayette Centre
1155 21st Street, NW
Washington DC 20581

Richard Schaeffer



World Financial Center
One North End Avenue
New York, NY 10282-1101

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