In Ted Butler's Archive


By Israel Friedman

(Israel Friedman is a friend and mentor to Theodore Butler. Mr. Friedman has owned and studied silver for 30 years. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct. Silver can go up and silver can go down.)

Many things are written about gold and silver, but at this time I would like to take a practical view. What looks more profitable – investing in gold or silver? I am more a silver bug than a gold bug, and you may think that I am prejudiced. But that aside, I think you will find out why I believe that silver will be a more profitable investment than gold.

Let’s think only the logical and rational way, that gold and silver are materials needed for regular consumption, and not look at them for insurance for catastrophic events. I will try to convince you, if you are an optimist, that silver is the best investment for you. If you are a pessimist, gold is for you.

The difference between optimist and pessimist is very simple. For the optimist, every day is a holiday. For the pessimist, every day is a burden. Generally, optimists are happy, pessimists are sad.

Before you invest in any material for the long term, you have to ask yourself what are my chances to make profits? There are three important questions you have to research,

1, What is the real supply/demand situation?

2. Will the future bring more demand?

3. What profit expectations are reasonable?

The first point is supply/demand. Silver today is in its best fundamental situation. For the last 40 years silver has been in a deficit, and most of the world stocks have been consumed. It is only a question of when a shortage will occur. Total silver stocks today are around 500 million ounces, and mostly held by small investors since Mr. Buffett sold his holdings. At one time, silver had a stockpile of billions of ounces and today we are left with almost nothing.

In contract, for gold the supply/demand is not favorable. In the last 40 years the world gold stock rose tremendously. Today, we have close to 4 billion ounces of gold.

For the first round, score one for silver.

The second point is the future economy and what demand for materials can be expected? This is a tricky question. I am an optimist and my opinion is that the world economy will grow in the long run. Maybe some short term problems from time to time, but longer term I see growth. I also see a future for the USA. The most important thing that has to happen to achieve this situation is that the US must become independent from foreign energy sources. This can come into being by alternative energy (supported by congressional initiatives) and conservation.

If this happens, and the US becomes energy independent, it will bring lower real oil prices plus a strong dollar and good balance of payments. In the end, as a bonus, the terrorism will be eliminated, just like President Reagan defeated communism through a strong economy. As a result, we will have an excellent world economy and peaceful times.

With the world economy booming, and billions of new consumers, the world will have a problem with how to supply the needed materials. The only way is by price rationing. Silver will be on the top of the list to benefit because of no overhang of world stocks.

Very few people know that silver is a rarer material than gold. That is because gold is priced much higher than silver. The price is all that most people look at; they don’t take the time to study the real situation. But, the price of silver will continue to gain on gold, and this will not go unnoticed. Then people will look more closely. When the world’s investors come to the realization that there is less silver above ground than gold, they will switch from gold to silver, regardless of price. The trick is to beat them to it.

A good economy isn’t bad for gold, but the people who are investing for the wrong reasons (crashing dollar, financial disasters, terrorism, etc) will be disappointed. The price of gold will not collapse, but will hold because of the price explosion in silver.

After two rounds, score 2 for silver.

For the third point, future price expectations, every one who invests asks himself what returns he should expect. To make good money by investing in a material, the best you can hope for is a shortage. And then you will see the highest price possible.

In this case, silver can achieve a shortage situation, because it is consumed industrially, but gold cannot. Gold can go higher in price, but it can’t be in an industrial shortage. I don’t want to pinpoint a specific price expectation in the event of a shortage, but my opinion is that in 10 to 20 years from now most of silver holders of 1000 ounces or more will become millionaires in good dollars. In the universities, they will study how only the small investor recognized the silver bonanza.

After 3 rounds, it’s 3 – 0 silver.

For the gold investor I say, if dark days will come, you may do as well as silver investors. But in my opinion, only optimists prosper long term, so I’d stick with silver. This is strictly giving my opinion, before you invest do your homework. Don’t forget the modern gold is silver.

The 3 W’s

By Theodore Butler

(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.)

Just a quick update for those who took the time to write to the Securities and Exchange Commission (SEC), asking them to force the NYMEX/COMEX to address the concentrated silver short position before going public. No, I don’t have anything specific to report, although I am sure the SEC took note of the many hundreds of letters they received. This was an unprecedented event for the SEC.

How the SEC reacts is unknowable. Now, it is up to them. They could do something or they could do nothing. Since they have clearly been put on notice that many people suspect deep wrongdoing in the silver market, I think the greatest risk to the SEC could be if they ignore the mass warning. Certainly, in the event silver blossoms into the scandal I feel is inevitable, they could never say they weren’t warned.

Likewise, the Chicago Board of Trade (CBOT) has been notified by me that the concentrated short sickness has spread to their silver market, where the largest traders are short more, percentage-wise, than on the COMEX. If my suspicions are correct, and the largest traders on the CBOT are the same, or largely the same, as on the COMEX, the combined concentrated short position of the 4 largest traders on both exchanges now equals almost 200 million ounces, according to the latest Commitment of Traders Report.

I view the SEC and the CBOT as different from the CFTC and NYMEX/COMEX in the silver manipulation. The CFTC and NYMEX are in too deep to admit, at this stage, that anything is, or was ever, wrong in silver. They have too much to lose. They must deny, at all costs.

The SEC and CBOT are newcomers to the silver manipulation. They are not longtime participants. The silver manipulation was not formed and nurtured on their watch. They have not publicly and repeatedly denied its existence, nor have they defended the manipulators. They have a clean slate when it comes the manipulation. But now they have been confronted with the allegations. Now they have to choose. Will they reject the manipulation and move against it, or will they ignore it and do nothing?

While I have no way of predicting how the SEC and CBOT will decide in this matter, I would ague that doing nothing carries the most risk for them, when the silver market reflects the manipulation for all to see. After all, there is no way that the SEC and CBOT can claim they were unaware of the silver problem.

Great scandals tend to share a common denominator. Generally, it’s not the actual act of wrongdoing that causes the greatest damage, as much as the efforts to conceal the wrongdoing. From Washington, DC to the corporate world, the story continually plays out the same. From Watergate to the current Foley/page scandal to the Hewlett Packard pretexting scandal, it always comes down to the 3W’s – What did you know, when did you know it, and what did you do about it (once you knew)?

If these thoughts are not on the minds of those in charge at the SEC and the CBOT, I believe they could be making a mistake that could damage them personally and the reputation and viability of their institutions, when this scandal finally breaks. That’s the price of doing nothing when you should be doing something.

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