In Ted Butler's Archive


Perhaps the first thing I discovered in 1985, when silver was trading in the $5/oz range, is that I knew of no one that was interested in shorting silver. Sure, there were plenty of folks who made and lost fortunes in silver on the Hunt-inspired run to $50 into 1980 and subsequent collapse – but I knew of no one seriously bearish enough to short or want to short silver at $5 in 1985. Everyone I ran across was long or out, with Commitments of Trader (COT) report data confirming this.

It was precisely because the public was overwhelmingly long that the banks, playing the role of market makers, had to be short. Everybody can’t be long in a derivatives contract, as there must be a short for every long and vice versa. So, by default, the banks were short to the public’s long silver position – they had no choice. But how did the banks hope to profit from such a lopsided arrangement?  Luckily, for the bank shorts, a number of things worked in their favor.

For one thing, COMEX silver futures offered tremendous leverage. A contract could be purchased with no more than a 5% or 10% deposit, which meant that in a 5% or 10% move in silver (25 to 50 cents), a speculator faced either a doubling or a full wipeout of deposited funds in an upside or downside move. Back then, there were proportionately many more individual speculators, employing technical trading methods and stop-loss orders.

In addition, the managed-money crowd was just starting to deploy technical signals to buy and sell. Almost invariably, these managed-money technical traders bought on rising prices and sold on declining prices – as they do to this day, allowing the bank shorts to buy back and cash in profitably. This is the motivation and method for manipulation.

In terms of the ongoing COMEX manipulation, there are signs galore that the manipulation is ending. The 8 big shorts in COMEX silver and gold futures have gone profitless for the past few years.   The mechanical operation of how things work on the COMEX strongly suggests that at almost any time, there will be an abrupt and sudden surge in silver prices that will surprise and shock most observers. It won’t be any special news that drives the price surge, but instead, the mechanical operation on the COMEX.

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