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Eliot Spitzer Meets The Silver Managers?
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 new Commitments of Traders Report (COT) in silver has reached a new extreme. Only once before in history, in 1994, has the net short position of the commercial dealers been larger. The current report, as of Sept. 9th, shows a net short futures position of 81,755 contracts, or almost 409 million ounces. Over 310 million ounces of this net short position is held by 8 or less traders. The gross short position in COMEX futures and call options is truly epic – just over 900 million ounces. That’s more than 50% greater than world annual mine production and six times greater than all visible world bullion inventory. Never has such a mismatch existed in any other commodity. Never.

In the last two weeks, the commercials have increased their net short position by 15,000 contracts, or 75 million ounces. In the last two weeks, as I have reported, the shorts have also struggled to come up with sufficient real silver to deliver against open September contracts measuring in the several-hundred contract range. That is outrageous. That should bother you. It should also bother the CFTC and the COMEX, but I doubt it will. It highlights the growing gulf between real silver and paper silver. In real silver, we are confronted with either premiums or delays. In paper silver, it’s sell short all you want, because the regulators are either asleep or worse. How this epic mismatch plays out is anyone’s guess, but it should really drive home to you the imperative of owning physical silver.

It has been many months since I first asked the CFTC how it could be possible that silver could be considered a free market, seeing how it is in a documented long term deficit (verified by shocking declines in visible inventories), with no sharp increase in price. Neither they, nor anyone else has been able to address that question. Manipulation is the only answer. I know it, you know it, they know it.

It is shameful that the CFTC is ducking this question, as well as their clear responsibility to deal with the silver manipulation. I’ve decided to continue to press ahead on this issue, and I am taking the advice that many have offered. The following letter is self-explanatory. Thanks for the suggestion.

September 15, 2003

The Honorable Eliot Spitzer
Attorney General
State of New York
120 Broadway
New York, NY 10271

Dear Attorney General Spitzer:

First, let me congratulate and applaud you on your courageous and effective campaign to root out wrongdoing in the financial industry. Millions of ordinary investors are better off due to your actions. I wish you continued success.

I write to alert you to yet another high-profile financial fraud, that has affected many tens of thousands of innocent victims. The fraud involves the silver market. For 20 years, the price of silver has been manipulated and artificially depressed by a small group of large financial firms and traders, principally from New York’s Commodity Exchange, Inc. (COMEX), the world’s primary and most dominant precious metals exchange.

Briefly, the manipulation has operated like this – whenever, since 1983, market participants have purchased silver contracts on the COMEX in sufficient numbers to cause a price rise, the manipulators have sold short naked silver contracts (not backed by real silver or legitimate hedging) in any quantities deemed necessary to overwhelm the buyers and eventually cause the price to decline. As prices decline, the manipulators then cover their shorts, at a profit, and await the next opportunity to sell again and repeat the process. The proof of this illegal activity is a total silver short position on the COMEX that is greater than either world production or total world known inventories. The most recent market statistics indicate a near record short position in COMEX silver futures and call options of 900 million ounces, versus a world annual mine production of less than 600 million ounces and a world visible bullion inventory of less than 150 million ounces. The existence of a short position greater than what exists or could be produced annually is, of course, an absurd situation which has never occurred in any other commodity.

Certainly, while the selling short of unlimited quantities of naked paper silver contracts on the COMEX has artificially depressed the price, this selling alone could not keep the price depressed for so many years. Sooner, rather than later, this manipulation would have failed, due to the effect the artificial low price would have in the real world, namely, in increasing demand and curtailing supply. The manipulators have been able to circumvent the law of supply and demand by simultaneously dumping real silver on the market from a non-free market source. The same manipulative paper short sellers on the COMEX have devised and managed the silver “leasing” business, which, in essence, is the non-economic dumping of silver from foreign central banks, including the Philippines and Red China.

I have publicly documented this silver fraud and manipulation for many years. I have notified and publicly debated this issue with the regulator of last resort, the Commodity Futures Trading Commission (CFTC), as well as with senior management of the COMEX, which functions as the self-regulator. I have even notified the senior management of the five firms who I have publicly identified as the ringleaders, or Silver Managers. Full details can be found at my web site –

Bottom line, it is simple to prove that a long term price manipulation has existed in silver, due to an incontrovertible maxim of the law of supply and demand, namely, that it is impossible, in a true free market, to have a commodity in a deficit, with documented declines in inventory, without sharply higher prices. Yet, that is precisely what has occurred in silver. Because silver has been in a verified deficit for many years, many billions of ounces of inventory have been consumed. Yet in spite of a draw down in world inventories of billions of ounces, the price has been stagnant, because of the manipulative activities of the COMEX Silver Managers.

As I’m sure you know, it is impossible to deplete inventories so severely without a corresponding price rise, in a free market. The CFTC, even though it is staffed with a taxpayer-funded economic department, as well as the COMEX, has not and can not address this inventory decline/no price increase conundrum, even though they have been asked, by me and many others.

Please allow me to be clear as to why I am writing to you. I am not asking that you investigate this silver market manipulation. The CFTC and the COMEX have already investigated and they claim that there is no manipulation in silver. But the public statistics and facts about silver so overwhelmingly point to a certain physical shortage looming dead-ahead, that it will become obvious, in the relative near future, via sharply higher prices, that there was indeed a manipulation. A reasonable person could reach no other conclusion.

My concern is that because the CFTC and COMEX have been so steadfast in denying that a manipulation in the silver market actually exists, that they will respond to sharply higher prices in a manner consistent with their past statements and actions, namely, they will attempt to continue to protect the shorts and to punish the longs. If history is any guide, there will be attempts to relieve the shorts of their prime responsibility to deliver physical silver, or to set special obstacles on the longs to prevent them from receiving delivery.

I am respectfully requesting, when silver prices begin to reflect the true fundamentals, that you stay alert to likely attempts to compromise market integrity, by rule changes and emergency orders on the COMEX, that seek to protect the manipulative shorts. If the CFTC and COMEX management see nothing wrong with a naked short position greater than all the silver in the world, then they must not be allowed to change the rules and terms forcing those shorts to deliver real silver, if demanded to by the longs. No one forced these shorts to sell in the first place. If the CFTC and COMEX management see nothing wrong with the historically low price of a commodity in a structural deficit with exhausted inventories, then they must not be allowed to interfere with the historically high price to come, as guaranteed by the law of supply and demand.

I am also respectfully requesting that you contact the COMEX, and ask them what plans they have in place to deal with the inevitable silver shortage, in the hope of heading off a market emergency. Please ask them to explain how they will safeguard the rights of innocent ordinary investors to receive delivery on their contracts, when there is so little real silver around and so many times that amount held short.

We all know that if someone writes a check that he knows is not backed by sufficient funds and will bounce, that is a crime. Is it less (or more) of a crime if large financial firms sell contracts of silver short, that they know they can’t back up with real silver, simply to artificially depress the price? Please ask the COMEX what safeguards they have in place to insure that big short position holders can fulfill their responsibility to deliver real silver. If any COMEX contracts are ever returned and stamped “insufficient silver”, I hope and expect that you will prosecute the silver short check writers to the fullest criminal extent of the law. 

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