In Ted Butler's Archive

Keeping Up To Date

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 latest Commitments of Traders Report (COT) confirmed the complete flush out of the 100,000 tech fund gold longs that were added just before the break in prices. While tech funds were also flushed out in silver, it was not as dramatic as in gold. What was dramatic in silver, was the actual fall in price. Over a 13 trading day period, silver fell from just over $8, to around $5.80, almost a 30% decline. Over that 13 day period, there were six days that the price finished higher, so the entire decline took place in 7 trading days. I’d like you to think about that for a moment.

In 7 trading days, the silver market lost $2.20, for an average loss of just over 31 cents for each losing day. The silver market took six months to climb from under $5 to over $8, almost $3.50, with very few, if any, 31 cent plus days. Yet, we averaged 31 cents a day for the 7 days of losses, with days of close to fifty, sixty and eighty cents price drops. How can it be that the downside is so much more concentrated and severe, than the upside?

Many have written to me lately, asking me to more fully explain my claim that silver is manipulated by the large short position and coordinated trading by the concentrated, large commercial dealers, who constantly trick the brain dead tech funds (hedge funds, computer-driven funds, etc.). While this is, admittedly, a very complicated issue, please allow me to try again to make it as simple as possible. I’ll use the recent price experience as my example. I am offering this explanation, not only to those who’ve written me, but also the regulators and industry officials who continue to look the other way.

I think what people find hard to comprehend is how the dealers can buy back large numbers of contracts that they hold short, without causing prices to rise. I admit that is difficult to comprehend, but it is exactly what proves that silver is manipulated. There are always buyers and sellers in any price move. When prices fall in silver the sellers are invariably the tech funds and other leveraged speculators, and the buyers are always the dealers. Never, in the history of the COMEX, have the tech funds, as a group, bought when prices were falling, and never have the dealers, as a group, sold into a big price decline. Never.

The dealers always buy into big silver price declines, covering previously sold short positions. The tech funds always sell into big silver price declines, selling out previously purchased long positions. There has never been an exception to this pattern in COMEX history. You should be asking yourself – are these dealers the luckiest sons of guns in history, to never be wrong and always getting to buy big and cover on the downside, or is there more to the story? Your common sense should be telling you that nobody can be that lucky, for that long. It’s as if someone playing roulette at a casino won everyday for 20 years. If you’ve ever speculated in commodity futures, you know it can’t just be luck. Imagine Hilary Clinton doing what she did in the futures market every day for twenty years. There has to be another explanation.

Once you dismiss blind luck as a reason for a twenty-year, nonstop win streak as an explanation, what are you left with? Like the roulette player who never loses, you have to conclude a rig job. You may not know exactly how the rigging takes place, but you know it has to be rigged. No one can be that lucky. I’ll tell you point blank how they’re doing it. The dealers are colluding. By some pre-arrangement, either by a formal profit sharing agreement, or by a wink and a nod, the dealers know beforehand, just how they will behave, in unison, on the floor of the COMEX. There can be no other possible explanation.

I know these are strong allegations. This has been an incredibly powerful manipulation. We didn’t have one 25 cent gap up silver in the six month rally, yet we had five 25 cent gap downs in the 2 weeks down. That was just the dealers’ good luck? Give me a break. I know the tech funds sell indiscriminately, but there is no way that the dealers were not colluding and conspiring to collectively pull their bids on the 7 collective down days. It is not possible that the dealers weren’t colluding. This is how the dealers can always cover tens of thousands of contracts on lower prices, against every normal instinct you have that their buying should push prices higher. They sell tens of thousands of naked shorts in a disciplined, orderly manner, at ever higher prices on the way up, and then collectively pull their bids, all at the same time, and only buy at sharply lower prices. They stick together to control the market.

The dealers never compete against themselves. That is their number one, unspoken rule. Whatever happens, no matter what are the market conditions, it’s one for all, all for one. The only problem is that this is not some chivalrous version of the Three Musketeers, this is a colluding price-fixing cartel, a wolf pack. I can say that with impunity, because it is true. And it’s not just silver they illegally operate in, flouting the most basic laws of the free market, it’s in lots of markets, certainly including gold. It is truly shameful that the regulators allow this to happen.

Speaking of regulators, I have been told by the CFTC that they plan to respond to the hundreds of letters and e-mails sent in to them, as a result my article of February 9, “A Special Invitation”. Their response should be put up on their web site ( either this week or next. It is unlikely that they will publish all the letters and e-mails, which is somewhat disappointing, but I’m told that they will acknowledge that some 500 letters were received. There is no question that this is the largest outpouring of public reaction to any issue in the history of the CFTC. Once again, thanks for your time and effort.

I am further told by the CFTC, that this will be a lengthy response. I think this reflects the seriousness of this issue, as there is no more important concern in any market than that of manipulation. I don’t want to anticipate what the CFTC will say, but there is no way that they will acknowledge the existence of a long term silver manipulation. They can’t, because the consequences would be catastrophic. (The manipulators would be liable for everybody that lost money in silver for the past 20 years.) I also don’t expect any heartfelt gratitude extended to me for raising and re-raising the issue. That’s OK, as I have thick skin. Nevertheless, I will be studying their response closely, as should all market participants, especially including the manipulators, as it may provide important clues when read between the lines.

There are close to 3400 names on the petition to Eliot Spitzer, a truly significant amount. I didn’t think that many people even followed the silver market. This is another issue that is not going away. AG Spitzer, to my knowledge, never received a fraction of this number of petitioners for any other criminal allegation in his office, and I know many people have written to him independent of the petition. While I am impatient with the apparent lack of demonstrable action by Spitzer’s office, there are other signs that maintain my faith in his honesty and desire for justice. For instance, it is very difficult to find AIG’s heavy footprints in the silver market lately.

I had previously highlighted AIG’s history and involvement in the silver market, in an article on December 8, “The Weight of the Evidence”, in which I speculated that they were the kingpin of the Silver Managers. I had also written to Eliot Spitzer at that time, in a letter never published, in which I asked him to look into the propriety and legality of this insurance company speculating in commodities. I also pointed out that virtually none of AIG’s shareholders and policy owners were aware of their involvement in trading commodities, particularly silver.

AIG is a very large company. Currently, it is the 7th largest company in the US, by market cap. Only 6 companies are larger – GE, Microsoft, Exxon-Mobil, Pfizer, Citigroup, and Wal-Mart. In addition, AIG has a reputation of being extremely aggressive in its business practices. Quite frankly, I’m surprised that they did not react forcefully to my allegations. I never heard a word from them, and they certainly did not answer the questions I publicly asked about their silver market involvement.

Instead, the only visible reaction that I’ve been able to detect is the sudden disappearance of AIG from COMEX silver deliveries. Prior to my article and private letter to Eliot Spitzer, AIG had been the most active issuer and receiver of silver deliveries on the COMEX for years. In fact, their very big deliveries of the December contract was one of the key points in my article. Since then, they appear to have abandoned silver deliveries altogether. Their name has been conspicuous by its absence in COMEX deliveries from that time. I don’t know if they are abandoning the silver business completely, as I think they should, or if they are camouflaging their activity through other dealers. I can’t help but sense a Spitzer connection or concern. Hopefully, time will tell.

In another matter, the CEOs of the major silver mining and resource companies have continued to bury their heads in the sand during the recent price rig job to the downside. Specifically, the CEOs of Pan American, Helca, Coeur d’Alene and Apex must be singled out, as they all have the funds to stand up to the manipulators. Instead, they don’t even question what’s going on. I have never seen a group of executives more out of touch with reality and their shareholders than these silver miners. I have yet to receive a negative response from any shareholder of a silver mining company, to my suggestion that they deploy 10% of their cash on hand, to withhold silver production, or buy silver where there is no production. Yet the companies won’t consider it. The companies won’t even speak up about the clear manipulation in silver, when every shareholder I’ve run across knows it to be true.

I’ve come to the conclusion that either these CEOs are afraid to do anything dramatic or have no sense of the real value of the product they produce. I don’t think they are worthy to head their companies, and while there may not be much anyone can do about it now, the first mining company that does stand up for the shareholder in these matters will become the star of the industry. The behavior of these CEOs makes the case for real silver over a silver mining company much stronger.

Not that the case for investing in real silver needs to get easier. In fact, I think this is a particularly good time to load the boat with real silver, as I indicated last week in “The Mother Of The Mother.” The signs pointing to the coming high value of real silver continue. As I have written previously, there are two kinds of “paper” silver, one which is backed by actual, designated real silver, and one that isn’t. It seems that more people are coming to appreciate this distinction.

Specifically, I am still fascinated by the stories emanating from Canada, concerning large physical silver demands. One, concerning the Central Fund of Canada, is as public as it gets, with them waiting for close to 7 million ounces of actual silver, resulting from their recent share offering. Then there’s the partial delivery of silver they purchased six months ago. I think this is putting real pressure on the dealer community to come up with this amount of real silver. It is reasonable to assume that silver demand will keep the premium on the Central Fund high enough to permit future stock offerings and purchase more metal. This is good news.

But the other Canadian delivery story (more a strong rumor than a documented story at this point), also promises to have a potentially profound impact on the silver market. I hear that a large institutional investor, arranged for private storage, and requested that their silver, which is now in paper certificate form, be converted to real silver and physically delivered. All paper silver certificates have this clause, which enables the owner to demand physical silver for some addition charges. The certificate is already owned and paid for, it’s just the additional charges that must be paid, as well as storage arranged. (I believe there’s literally billions of ounces of silver certificates throughout the world that have zero real silver backing them.)

The important point here is that the owner is not buying silver, just converting his certificates into real metal. I hear the amount of around 8 million ounces, as previously noted. If this catches on with other owners of silver certificates, it could be like a hydrogen bomb on the silver market. The silver shorts and certificate issuers would go into a panic. Most certificate owners are reluctant to pay the extras fees to convert to real silver, as everyone loves a bargain. But if silver paper certificate owners would just think for a moment about how easy they are making it for the manipulative shorts by holding this phony silver paper, and how they are hurting themselves, they would switch to real silver in a heartbeat. The guy from Canada who started this trend is a smart man. If others follow him, as well they should, it’s lights out for the shorts.

Start typing and press Enter to search