In Ted Butler's Archive

The Speed Of Sound

(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.)

Financial and market developments seem to be rushing by at unworldly speed. Government bailouts, unprecedented market turmoil, non-stop conflicting commentary. It’s hard to comprehend everything, much less write about it. At the same time, the turmoil creates opportunities like never before. I’m an old hand with silver, yet it is beyond extraordinary to see plummeting prices amid a shortage. I know full well the reason for this apparent impossibility, but witnessing it is still incredible.

At exactly the same time silver is falling sharply in price, the physical demand has never been stronger. On the retail investment side, delays in delivery are longer and premiums are higher than ever before. This is a set of circumstances no one has ever witnessed. In fact, the opposite was supposed to happen when silver recently climbed into double digits. Silver would supposedly come out of the woodwork. No one predicted silver would be so hard to find. In spite of ramping up production, the US Mint can’t keep up with demand for Silver Eagles, for the first time in history.

The holdings in public and institutional silver vehicles are at all time records with no inventory liquidations recorded on the price decline. From the top of the market in July, silver is down near 40%, yet the big ETF, SLV, has increased its holdings by 5%, or 10 million ounces, to 210 million ounces. Over that same time, the big gold ETF has witnessed a near 10% liquidation in ounces, down 2 million ounces, or more than $1.5 billion. Yet gold has been stronger in price than silver. The law of supply and demand has apparently been turned on its head with silver.

The solitary reason for the price decline in silver (and gold), is the forced liquidation of leveraged paper long positions, primarily on the COMEX. This is the driving force behind the epic sell-off. More than 160 million ounces (and counting) of paper silver have been liquidated by those holding it on margin. That’s not physical ounces, only paper ounces. This has been the most blatant and effective liquidation in history. All under the nose of sleeping or complicit regulators.

In addition, the liquidation of paper silver has recently been centered on those holding long silver/short gold spreads on margin. This has caused the ratio of silver to widen to levels not seen in years. This has created an opportunity for those holding physical gold to switch to silver at extremely advantageous prices. No margin please, strictly cash metal for cash metal.

The true dichotomy is that silver has never been a better investment at precisely the same time it’s price performance has never been more extreme. I couldn’t make this up if I wanted to. The current silver Commitment of Trader (COT) data is the best it has been in a year (gold, as well). Regular readers know this is not unusual, as the pain of sell-offs create the buy points that we look back upon as ideal. But this current sell-off is like few before it, both for pain and potential reward. Furthermore, this last sell-off has set a new standard for the lack of regulatory oversight.

The Bank Participation Report for September has been released by the CFTC, and it is shocking. It provides further clear evidence of price manipulation by one or two U.S. banks in silver and by no more than three U.S. banks in gold. It should be obvious to even the semi-alert that these U.S. banks succeeded in engineering the price of silver and gold sharply lower. The only difference is that the big U.S. banks were successful in closing out much of their net short gold position, but were decidedly less successful in closing out their silver short position, in spite of massive overall liquidation. Here is the link for the data –

Distilling the numbers in this report and also utilizing the relevant weekly COT data, on a net basis (the only type that matters), from August 5 to September 2, on a $90 decline in gold, the 3 or less U.S. banks bought back almost 53,000 COMEX futures contracts. Non-U.S. banks bought an additional 20,000 gold futures contracts net. This total of 73,000 net contracts bought over the month accounts for 80% of the 91,000 contracts sold by leveraged longs on the big decline. This is what is known in manipulation circles as the ringing of the cash register.

In silver, the story was quite different. On a $3+ price decline, the one or two U.S. banks were only able to buy back, or ring the cash register, on 2,000 contracts net, leaving them still net short close to 32,000 contracts (160 million ounces.), as of Sep 2. The big short U.S. bank (or banks) only covered 12% of the total 16,500 contracts bought by other commercials and sold by margined paper longs over the month. (Non-U.S. banks haven’t changed their position of 3000 contracts net long in three months). In gold, the big banks accounted for 80% of the total commercial buying, in silver only 12%.

Every category of commercial traders bought more silver contracts than did the biggest short – the U.S. bank (or banks) for the reporting month. The raptors (the commercials other than the big 8) bought almost 9000 contracts of the total 16,500 bought in the month, adding to their big long position. The largest 5 through 8 traders bought back 2300 contracts of their short position. And even the remaining two or three members of the 4 largest traders bought back more than the big U.S. bank(s).

My point is that every commercial category of trader bought more silver contracts, on the big price decline, than did the very largest short holder of silver. Why would that be? Especially when the big banks bought back so much in gold. We’re not talking about speculators against commercials, we’re talking about all the commercials buying much more aggressively than the one U.S. bank (maybe two). I think the big silver short could be trapped.

The result of this inability or refusal of the very biggest silver short(s) to buy back in the historic price decline has been to set a new record of concentration by a U.S, bank(s). Please take the time to review all the markets in the Bank Participation Report for September, or any other month. You should not find a major market with a larger concentration by U.S. banks than the 28% held by the one or two in silver, long or short. And the 28% concentration listed in the report is not adjusted to remove spreads, which gooses the percentage of real concentration even higher, to more than 36%.

Let me state that clearly – one (maybe two) U.S. bank holds a net 36% share of the entire COMEX silver market. The same one or two U.S. banks hold 82% of the total commercial net short position. This is a concentration that is unprecedented; maybe double or triple or more what the Hunt Brothers held on the long side in 1980. Without these, one or two traders, there would hardly be any commercial silver short position at all. This makes the big concentrated short a danger to everyone, including the market itself. That’s why the regulators must act now.

Blow Back

We have actual retail silver shortages and prospective industrial shortages for one reason – the price is too low. The very last thing that will remedy a shortage is lower prices. Sharply lower silver prices will only induce further shortage. It is, quite literally, like throwing gasoline on a fire. It is only a matter of time before the new lower prices stimulate more demand, both for investment and user inventory further restricting supply. This is the essence of the law of supply and demand.

The urgent rush by the manipulators to liquidate every margined long by rigging lower prices, must be done before those lower prices activate the new physical demand and curtail physical supply. There is a blow back phenomenon at work here – at some point the artificial low prices will trigger a price explosion.

That the CFTC just reports this data and allows this crime to continue is shameful. Concentration is their main warning sign to thwart manipulation and they are doing nothing about it, in spite of that concentration growing and many of you pointing this out to them. I think the refusal by the CFTC and exchange regulators to act in the clear presence of manipulation has crossed the point of them just being incompetent. I now think they should be considered complicit in this silver manipulation. I can’t see how they are not going to end up in jail for refusing to uphold the law they took an oath to uphold.

I know it’s frustrating to continue to complain to authorities who turn a blind eye to illegality, but it must be done. There is no other practical way. If you haven’t contacted them, you must do so now. If you have contacted them, you must contact them again. And keep contacting them as long as this crime remains in progress. I can tell you, for sure, that the CFTC has gotten more complaints about the manipulation in silver than the total of all complaints they have received on all other commodities combined. Still, they must receive more from you. The coming wholesale physical shortage will end the manipulation, but the regulators can end it sooner. Here are the addresses:

Finally, I have a suggestion to help uncover who the big U.S. bank, or banks, might be that is short so much silver. Last week, I sent my recent article to James Dimon, CEO of JP Morgan, one of the banks thought to be short. I have not yet received a reply. For the purpose of elimination, you should contact him and ask him if his bank is short silver on the COMEX, and if so, what is the economic purpose of the trade. If he responds that JP Morgan is not short, then we can cross them off the list and move on. Please be polite but direct.


By Israel Friedman

(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades. He has written articles for us in the past. Investment Rarities does not necessarily endorse these views.)

I don’t think that any intelligent investor can now argue that the metals market, especially silver, isn’t manipulated as Mr. Butler claims. While I tried to be quiet about it, I always questioned the manipulation and tended to side with the authorities who said no manipulation existed. I changed my mind totally with Mr. Butler’s discovery that two U.S. banks sold 140 million ounces of silver and 8 million ounces of gold in one month, followed by the collapse in prices.

I am surprised that the miners who live and die to get a price above their real production costs of $16.50 for silver and $850 for gold, are not the ones complaining. Why are they letting Mr. Butler do their dirty work for them?

I asked Mr. Butler why he is the front runner, carrying the manipulation flag? His answer was simple – it was the right thing to do and there was no one else doing it. He sees the big danger that the silver market manipulation can bring catastrophic consequences to the U.S. When the shortage of silver comes, it may force the COMEX to close, a scandal that would bring great shame to our country.

Plus, silver is a vital and strategic metal. The U.S. has a reliance on silver imports more extreme than it does on oil. I would not be surprised in the time of a silver shortage, that a big producing country might restrict exports of silver to get even higher prices. What will the U.S. do without silver, let factories close down and send their workers home? When you look far ahead, you see the danger the silver short manipulators are putting our country in.

In my opinion only a shortage will bring truly higher prices for silver. The current retail shortage is a good sign. The premium on my favorite form of silver, U.S. Silver Eagles, is the highest in history and demand has never been greater. I think you know that I am not too surprised at that. I think this is just the start. Wait until you see the premium when the U.S. Mint stops producing them one day.

There are now 440 million ounces of silver in the world’s inventory. I mean COMEX stocks, the ETFs and other silver investment vehicles. There are also large holdings of silver held personally by many individuals. But we know those personal holdings are not available up to at least $20 or higher, otherwise there wouldn’t be this tightness in the retail market.

Against this 440 million ounce world stockpile owned by investors, we have almost one billion ounces held short. Isn’t that crazy? It is this short position that represents a danger to everyone. The 440 million ounces is worth only $5.3 billion. One oil Sheik could pay that. We are lucky they buy gold, not silver. I hope silver stays at home and you who believe in silver will benefit. I think 20 to 30 years from now someone holding 100 ounces of silver will be considered wealthy and a genius investor. If I am not here to witness your good fortune, maybe you will offer a kind word about me.

One day in the future this 440 million ounce visible inventory will stop growing and begin to decline. This will be the ultimate signal for shortage and that the industrial users are now drawing down these inventories. The biggest question is will we be able to act on this signal and buy silver. I have discussed this with Mr. Butler endlessly over the years. He says the short sellers will understand what is happening before any of us and will have bid up the price in their hunt to get as much silver as possible. He says you must buy before that day, when it looks like there will never be a shortage.

When the silver inventory starts to go down and the price explodes, the shorts and the users and the CME directors will scream to the CFTC to stop the upward manipulation. It will be the reverse of now. But who will help them? Who can help them? Not the U.S. Government as they gave up their billions of silver ounces decades ago. Maybe you and I will help them a little at some crazy high prices. Others around the world will be learning how rare silver really is and may be anxious to buy. These manipulators who kept prices artificially low for so long will pay the price.

It is hard to look ahead to sunny days when a hurricane is upon you. But this down draft will not last forever. Soon there will be an even stronger force pushing silver prices much higher and for longer than any of us can imagine.

For subscription info please go to

Start typing and press Enter to search