In Ted Butler's Archive


There is no market more manipulated than silver. Therefore, it stands to reason that when the manipulation ends, the reaction the other way will be commensurate with the decades of price suppression. It appears inevitable that the final reaction upward will be quite volatile. The only questions are how high and how fast the final rally will be? The answer to both questions, it seems to me, is “very.” Of course, much in the silver story remains to be seen. Then again, much has already been seen, not the least of which has been the recent move in a matter of months from price lows not seen in a decade to multi-year highs – something that has never occurred in any other market. All things considered, we are at the most exciting point for silver in all the years I have followed it. It’s as if forces of every type imaginable have converged in unison.

At the core of this confluence of forces is silver’s incredibly unique dual demand profile both as a basic investment asset and an indispensable industrial commodity. No other commodity, not gold, not copper, not oil, and not even platinum or palladium, has the same dual demand profile of silver investment demand and industrial demand. Either demand, on its own, is capable of lifting prices to the heavens – but when combined, the potential price impact is truly hard to fully comprehend. And to add even more fuel to a potential price fire that needs no additional fuel, silver’s dual demand of investment and industrial consumption are tied together by a highly specific form of silver – industry standard 1,000 ounce bars. It is the silver in this form that unites investment demand, from every silver exchange traded fund, COMEX warehouse holding, industrial demand and potential inventory stockpiling. No, I am not knocking or discouraging silver investment in coins or small bars; I’m just saying that silver prices will be determined by demand for metal in 1,000 ounce bar form.

On the previous runs to $50, both in 1980 and 2011, it was investment demand that drove silver prices, not industrial inventory buying. In fact, industrial user demand as a silver price driver has yet to occur. But such industrial buying appears inevitable, not only because modern industrial silver users appear more tuned-in to world realities, but because investment demand appears set to soar, forcing the users’ hands. Once silver investment demand sets in and takes sufficient hold, the users will be faced with delivery delays, forcing some users to build inventories to avoid production shutdowns due to a lack of silver. This will only compound the problem and further delay timely silver deliveries to other users, reinforcing the whole panic buying environment. Panic buying is inevitable when users are faced with the prospect of shutting down a manufacturing facility.

There are a number of factors for a coming investment surge in silver.  For one thing, general investment surges in silver have occurred previously, starting when the U.S. stopped using silver in common coinage and citizens everywhere started hoarding the old coins containing silver. Moreover, those with foresight that did hoard old coins were rewarded for their foresight. In more recent times, there have been periodic outbreaks of investors rushing to buy silver, in forms ranging from coins and small bars to investment type products like silver ETFs. Currently, not only are there large premiums for retail products, like Silver Eagles, indicating strong retail investment demand, the holdings in world silver ETFs are at record levels. Rarely have we seen such retail and wholesale investment buying converge. And thanks to the internet, word has spread about the workings of the big COMEX commercial shorts and JPMorgan in setting the price of silver. While I get upset with the level of plagiarism, at the same time I am gratified more are spreading the “silver story” and as more take an interest in silver, its investment demand is bound to grow. As more eyes focus on the allegations that the regulators and JPMorgan refuse to acknowledge, I believe more will come to buy silver.

Now that the regulators are cracking down on the big shorts, like Scotiabank and others, the linchpin behind silver’s low price is being dismantled. More than that, the absolutely horrid financial results experienced by the big shorts over the past year and particularly since the contrived price lows of mid-March would seem to discourage the old scam of suppressing prices. The fact is that few are truly cognizant of how little silver exists that is available for potential investment (or user inventory buying). All that matters is silver in 1,000 ounce bar form and in that form no more than 2 to 2.5 billion ounces exist in the world or $50 to $60 billion worth. And remember, I’m talking about what exists, not what’s available for sale (which is only a small fraction of what exists).

I don’t believe more than one out of every 100,000 people (investors) in the world know that, in dollar terms, there are hundreds of times more gold in the world than silver in investible form. Most people look at silver’s low price compared to gold and automatically conclude silver must be much more plentiful than gold. Those investors who take the time to investigate the facts will appreciate how little silver exists for investment purposes compared to gold. They will see how only silver has industrial users in position to compete for the small amounts of silver that exist.

Away from the specifics surrounding silver, there are some macroeconomic factors, which on their own, promise to set off an investment stampede into silver. Near-zero interest rates, coupled with a worldwide rush by monetary authorities to create buying power to support economic growth and generate higher rates of inflation have created a virtual buying stampede in the stock market. It’s not uncommon to see the valuations of select stocks climb by amounts equal to or greater than what all the silver in the world is worth in extremely short periods of time. This is not a phenomenon previously witnessed.

Stock prices can only do one of three things – go up, down or stay the same. I doubt whether prices will remain the same for long, given all the crosscurrents in place, but it seems only a matter of time before some stock market money looks for alternative investments. And considering the paucity of legitimate alternatives, it seems inevitable that some stock market money will alight on silver, particularly as it makes new highs. Any one of the three factors – general investment demand, industrial user demand or investment demand seeking refuge from the highly-valued stock market could flood into silver at any time. And it’s not hard to imagine two or all three simultaneously rushing into an asset that has incredibly limited quantities. Yes, it has taken far too long to get to this point, but the wait appears to be over. More things seem aligned to cause silver to soar than ever existed previously.

So with all these factors in place promising much higher prices, how can sharp selloffs be explained? The explanation is the same as for every selloff over the past 35 years – coordinated and collusive price rigging on the COMEX by the biggest shorts. We may be on the threshold of the ending of the silver manipulation, but that manipulation is not yet ended. These big commercial crooks are like Count Dracula – they won’t be dead until the wooden stake is pounded into their hearts. The big shorts are close to dead, but not yet there.

Unlike any other asset, the silver price is controlled by paper trading on the COMEX. You can’t say that about any other investment asset. No other market (gold does come close) is as dominated price-wise as silver in terms of derivatives trading.  No other investment asset has close to the concentrated short position that exists in COMEX silver. As long as this concentrated short position exists, the chance of sharp selloffs exist. At the same time, the signs are increasing that the concentrated shorts in silver face headwinds pointing to their control slipping away. While the CFTC will never rule that silver has been suppressed in price, the actions it has taken against Scotiabank and others, including pending findings against JPMorgan, are not amenable to continued suppression through concentrated shorting.

The problem for all is that no one can make the concentrated silver short position simply disappear. And it is not possible to bring the physical quantities of silver into the COMEX warehouses sufficient to cover the concentrated short position, as seems to have occurred in gold. It doesn’t seem reasonable that 300 to 350 million physical silver ounces can be added to the COMEX warehouses to equal the feat accomplished in gold over the past several months. Up until mid-July (little more than a month and a half ago), all the financial damage to the 8 big shorts in COMEX gold and silver came from gold, not silver. That’s because gold had risen sharply in price, while silver had not. Yes, silver rose sharply from the mid-March lows to mid-July, but the short losses attributed to silver didn’t start until silver rose in mid-July.

Unless the 8 big silver shorts have 300 to 350 million ounces of physical silver in their possession, it seems highly unlikely they can replicate their experience in gold. Yes, the losses attributed to the big shorts in silver “only” amount to around $3.5 billion of the combined $15.5 billion total loss in both gold and silver, but until July, there were no net losses on silver. And if the big shorts don’t have the physical silver to back those losses (as they may have in gold), the situation is more critical in silver.

The big shorts may be in much greater jeopardy in silver than they were in gold. This explains why the selloffs are usually much sharper in silver than in gold. The good news is that the sharper selloffs provide better entry points for silver. Once the big shorts finally give up the ghost and the physical market delivers the final wooden stake, the selloffs will likely be a thing of the past, at least those due to big short manipulation. The inevitable coming price explosion will clean up this market once and for all.

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