In Ted Butler's Archive


We as individuals have little or no control over the state of markets; all we can do is adapt to market realities. In the case of silver, the reality is that it is in the grip of a price manipulation. History shows that various world governments have often artificially set the price of silver and gold in connection with official monetary policies. However, for the past 35 years a specific type of price manipulation has existed in silver via futures contract positioning on the Commodities Exchange, Inc. (COMEX).

Nothing can be more significant than the fact that silver is manipulated. Whether to participate in a manipulated market is something everyone must decide. To me, the choice is easy. Virtually all price manipulations in history have been of the upside variety which caused prices to be higher than they should have been. Buying an asset priced artificially high is a surefire prescription for eventual financial loss. But because the manipulation in silver is of the rare downside variety, the price of silver is artificially low, thereby guaranteeing eventual profits for those taking advantage of the opportunity.

The proof that silver is priced artificially low, creating the investment bargain of the ages, comes from reliable U.S. Government data. Weekly reports from the federal commodities regulator, the U.S.  Commodity Futures Trading Commission (CFTC), include detailed information on the number of futures contracts held long and short by various trading groups. Nearly all this trading in COMEX silver (and gold) is speculative, meaning there is little or no true hedging taking place. In the case of COMEX silver futures, the trading has become overwhelmingly speculative in nature. This paper trading has supplanted and replaced any price input from real world production and consumption.

Total open interest data indicates that there is a one-billion-ounce open commitment in COMEX silver short and long positions, more than annual world production or consumption. No other commodity has a larger real world equivalent total open interest this high. The long and short position in COMEX silver is so much larger than that of any other futures-traded commodity that it necessarily exerts a force on price more profound than in any other commodity. Because the positioning in COMEX silver futures is larger than what’s going on in the real world, the paper market dictates price to the world of silver production and consumption. This shouldn’t be and, in fact, is contrary to US commodity law. However, the CFTC refuses to deal with a market distortion that is the very essence of price manipulation.

The entire COMEX net short silver position is held by just 8 traders, most of which are U.S. and foreign banks. This is the one glaring feature in silver that, to this point, has escaped notice, even by those that regularly follow and comment about the silver market. This is the entire ballgame in silver. The 4 and 8 largest shorts in COMEX silver have never taken a collective loss through decades of trading even when silver prices rose strongly (such as in 2011) and they experienced large unrealized losses temporarily. Those large losses always disappeared by the time the short positions were closed out. Whenever it’s necessary for them to contain and cap price rallies, the 4 and 8 largest traders will sell short as many new contracts as required until prices eventually top out and fall. Only then will the 4 and 8 big shorts buy back their short positions, thus compiling a perfect trading record of never taking losses.

Something this corrupt cannot continue. The markets will ultimately correct this anomaly.  Consider the price implications of a final end to the silver manipulation and the dominance of the 8 largest shorts on the COMEX. Silver must soar to near-unimaginable levels when the manipulation ends. The longer one lives through a manipulation, the end seems further and further away. In reality, the passage of time brings the ending closer every day. In the case of silver, there is growing recognition that the concentrated short position on the COMEX has no legitimate reason to exist.

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