In Ted Butler's Archive


On Aug 18, I wrote how I expected an upside explosion in silver and gold prices soon. Since that time, gold has penetrated its key moving averages, but silver has not. The key point in silver, is what will the 4 largest commercial shorts do as and when silver prices rally and penetrate the key moving averages/ If they don’t add aggressively to shorts, it seems to me that silver prices must explode. This is the only real thing that matters in silver (and in gold to a lesser extent). I don’t doubt for a moment that silver is the most undervalued asset out there. My main concern is explaining why it is that this severe undervaluation exists. Let me not beat around the bush – silver is so darn cheap because a few big shorts have colluded in selling short paper contracts for nearly 40 years in amounts out of line with any other commodity.

However, the prospects of great change appear to be upon us. Rarely have the lines of demarcation between whether the COMEX silver manipulation continues or ends been clearer than presently. After more than a decade of near iron-fisted control by JPMorgan in which it designed and put into play the perfect escape strategy (by accumulating mountains of physical gold and silver), JPM abandoned the short side of the COMEX completely on the infamous price smash into March 2020. In doing so, it handed off the baton to the remaining big short sellers on the COMEX, without their knowledge or warning.

Since then total losses to the big 8 have ranged from $8.9 billion to $14 billion and currently stand at $10 billion. While they haven’t been able to completely rid themselves of the core short position, it has been reduced in silver to the lowest levels in six years – no minor accomplishment. Such large losses (over a billion dollars per trader on average) must be causing concern – how could it not?

The age-old market remedy for closing out a losing short position, is to buy the short position back and endure the higher prices the short buyback might necessitate. However, a problem arises when the short position is so large that the buyback and would send prices to extremely high levels, further increasing the already large losses. We’ve seen this phenomenon this year in certain stocks, like GameStop and AMC.

In other words, the big silver shorts had no real choice but to continue to cap prices as they worked on a solution to fix a very serious problem. That price capping reached a pinnacle on Feb 2, when the 4 biggest COMEX silver shorts were the only short sellers that week as prices soared and they needed to add more than 6,600 new short contracts (33 million ounces), increasing their concentrated short position to the highest it had been in a year. The gambit worked, as silver prices topped out, but the evidence of the price-capping was indelibly recorded in Commitments of Traders (COT) report data.

From a point on Feb 2 when silver prices were the highest they had been in 8 years and the concentrated short position was the highest it had been in a year, the big shorts succeeded in reducing their concentrated short position to the lowest levels since 2015 on the engineered price decline over the past several months. That’s why I anticipate a price explosion in gold and silver. The big shorts are closing out their short positions.

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