In Ted Butler's Archive


Two weeks ago, it looked to me like silver was about to take off, following months of sharp price declines, yet we experienced the worst selloff in a couple of years.  Most puzzling was the cause of the sharp price declines. It didn’t appear to reside in COMEX futures positioning. It was something else entirely. I’ve been (quite literally) agonizing over what was behind this completely unexpected selloff to no avail, almost to the point of questioning my sanity, until a simple question from Jim Cook, president of Investment Rarities, appeared to provide the answer. Jim asked if the highly-counterintuitive selloff I was moaning about could be related to the short position in SLV and my head nearly exploded because it was so obvious that I couldn’t conceive why I hadn’t thought of it. Talk about being too close to the trees to see the forest. I had been so pre-occupied with the excessive short position in SLV that I failed to make the most obvious connection.

Simply put, the most plausible explanation for the selloff in silver this week was the short position in SLV that I have been writing about. The excessive short position in SLV is the explanations for the truly putrid price performance in silver over the past two weeks.  What makes the short position in SLV such a big deal is that the most plausible reason for its existence is a wholesale shortage in silver of 1,000 ounce bars. The short position exists because there is not sufficient physical silver available for deposit, as is required by the prospectus. The only reason for an AP (Authorized Participant) to short shares of SLV at a time of extremely low silver prices and low levels of commercial shorting on the COMEX is the lack of availability of physical silver to deposit for newly created shares.

So how do those short in the SLV get out of their short position? Prices have been rigged lower on the COMEX to make it easier for whoever is short SLV to buy back short positions in SLV on lower prices. Shorting more shares would have only dug their hole deeper. The only way the big short sellers in SLV could rig prices lower was by using the crooked and illegal price mechanism of rigging prices lower on the COMEX, so that the shorted shares of SLV could be bought back. In fact, there was no other way. For the big short sellers in SLV, to simply buy back shares without using the COMEX price mechanism to rig prices lower would have sent silver prices soaring – the very last thing the big SLV short sellers would desire. I can’t explain how I didn’t see this until Cook asked me the question – but better late than never.

The biggest question, of course, is where the heck are the regulators while this is going on? I have put the SEC on notice (and have received confirmations that my complaints were received), but, obviously, this is very much a matter for the CFTC and the CME Group, as well and I’ll send them this article as I have all along. The issues I’m raising are substantive and documented and every bit the big deal I claim them to be. Yet, nothing ever seems to be the done by the regulators.

What I have described is nothing less than the existence of a profound physical shortage in wholesale quantities of silver that is much closer to hitting the proverbial fan that anyone can imagine. While I wouldn’t attempt to try and pinpoint when the turn up may come, it seems impossible that silver prices, regardless of where they may go in the short run, will not be substantially higher in the not-too-distant future. I have always made it a practice not to underestimate the treachery and cunning of the commercial shorts on the COMEX and now in SLV, and this latest manipulative episode in the shorted shares in SLV only prove these crooks are relentless. That said, a physical silver shortage appears to be close at hand and based upon what has transpired, any other conclusion seems far-fetched. One thing of which I’m increasingly certain is that whenever the real move higher in silver gets initiated, it won’t be of the two steps forward, one step back variety. Instead, we go straightaway and with no looking back.

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