November 22, 2009
September 5, 2009
Silver market analyst Ted Butler speculates in commentary posted today that China's recent threat to repudiate certain commodity derivative contracts may involve the overwhelmingly concentrated short position in silver on the New York Commodities Exchange. Butler's commentary is headlined "Warnings Ignored" and you can find it at GoldSeek's companion site, SilverSeek, here:
July 8, 2009
By Theodore Butler
When I decided on the title of this article, I had the old Rolling Stones tune in mind. But in checking the lyrics on the Internet, I came across this version by the Staple Singers some years earlier, from which the Stones song was derived. I have to say the gospel version was more in line with what I am trying to convey. Click Here
What is this “last time” I refer to? I think we are approaching the final stages of the great silver manipulation. While I can’t give you a date, I’d like to review the reasons why I think that‘s the case. If I’m correct, it means that the days of depressed silver prices will soon be over. It means the price will, at a minimum, reach the true free market price, which is much higher.
It appears that we’re well into the liquidation cycle on the COMEX. The falling price of silver and gold futures has been engineered by the big commercial shorts who use selling by long holders to buy back their short contracts. This is both the rhythm of the market and the manipulation. It’s the premise behind the COT (Commitment of Traders). I started writing about this latest liquidation towards the end of May.
The current liquidation cycle that we appear to be in, is only the latest in a long string of short selling on rising prices and liquidating on declining prices that has been played out on the COMEX, quite literally, for decades. Due to the repetition of this tech fund/dealer tango, and the total market control the big shorts seem to exert, at least in the short term, it is widely assumed this dance will go on forever. So why am I referencing gospel songs depicting that this may be the last time?
History has shown that whenever previous liquidation cycles have exhausted themselves, low-risk entry points have been presented. These sell offs caused the low risk buy points. The coming end to this current liquidation should prove no different. But what will determine whether it is the last one is the behavior of the big shorts on the eventual rally that follows.
The evidence of a silver manipulation grows stronger by the day. Awareness of the silver (and gold) manipulation has never been more widespread. This is unprecedented. We have never had a situation where hundreds of citizens have petitioned the regulators to end a manipulation. If allegations of a silver manipulation are on the mark, as I believe, surely such public petitioning will hasten its end.
When manipulations end, there is a sudden and violent price movement in the opposite direction from which prices were manipulated. Almost all previous manipulations have been to the long side, where prices were artificially elevated. When those manipulations were terminated, prices then collapsed. The silver manipulation is to the downside, and when it is terminated, the price will soar. If the silver manipulators are as smart and powerful as I have suggested, after they buy back as many short contracts as possible on a sell-off, they will likely step aside from selling new contracts short. If anyone can see the silver manipulation, it is the perpetrators. At some point, they will look to protect themselves when they see no hope in continuing. That will mean no new shorting.
Certainly, the data flow from the CFTC is showing an alarming trend towards super-concentration on the short side in silver (and gold). It’s really getting obvious. For almost a year, the four big commercial shorts have held more than 100% of all commercial net short positions. Recently, the 4 big shorts have held 70% and more of all the true net positions of all traders, commercial, non-commercial and non-reporting combined (when all spreads are removed). Such extremes can not continue, and they certainly can’t intensify. This suggests we have hit the limit in concentration levels.
We also have some interesting dynamics evolving at the CFTC, the chief regulator of silver and gold futures trading. In a few months, we will hit the one-year mark in their current silver investigation. This is the third silver investigation since 2004. Never has the CFTC investigated a commodity so frequently. Never has it investigated any commodity for allegations of manipulation based upon public petitions. The CFTC has often been accused of being an industry lap dog, more interested in cozy industry relations (and post-regulatory employment opportunities), than the public welfare and rule of law. There may be signs of change.
The new chairman of the CFTC, Gary Gensler, has more practical market experience than any previous chairman or commissioner. In every speech or in his congressional testimony he has spoken against fraud, abuse and manipulation. He has endorsed the need for legitimate speculative position limits. These are the specific issues in silver. He has yet to publicly acknowledge that banks speculate when they pretend to be hedging and that they need to be limited, both on the long and short side. Certainly he must have made that acknowledgement privately.
In addition, the new general counsel of the CFTC was a principal architect of the recently released Senate report on excessive manipulation in wheat. He surely sees the connection to silver and has discussed this with the chairman. Both of them know they have a limited time to act on the silver manipulation in order to not be blamed for it. Otherwise, they will inherit the responsibility for it. If the CFTC does decide to enforce existing law and move to end the illegal control by the big shorts, COT analysis becomes moot. You want to hold as much silver as possible before that happens.
As this article was about to be published, a new statement was issued by Chairman Gensler concerning new CFTC initiatives on speculative position limits and changes in the COT reporting. These are issues that go to the heart of the silver manipulation. My sense is that this statement is very important and will directly impact silver. I will be writing about this in the near future. Click Here
At this point, I don’t know how deep the silver and gold sell-offs might be. I will look for signs that suggest it may be over. It could be over quickly, there’s no real way to determine that in advance. In the meantime, the price drop has already removed much risk from the market. We are back to prices that are close to the real cost of production for the primary silver miners. Thousands of contracts have already been liquidated. We are now at prices much more attractive for buying than anytime in the past few months. Besides, you want to play it like it could be last one because if it is, there will be no second chance.
If this plays out as usual, the final sell off engineered by the short sellers will take place amidst a price bottom and doubts about silver’s long-term prospects. I can tell you that all such previous capitulation points proved to be remarkable good buy points. This one will as well. In addition, it may be the last one. If I am right, this could very well be your last great opportunity to buy silver at under $20.
(Editors note: When silver was at $4.10 an ounce, Ted Butler called it one of the great buying opportunities of a lifetime. Our customers have made hundreds of millions following his advice. If he is right this time, as he has to often been, this will be the final great buying opportunity.)
Here is a link to a new interview I did with Eric King of King World News on July 2 Click Here
A WORD FROM IZZY
By Israel Friedman
(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades.)
It's time that banks close their trading desks which are only a casino and concentrate on real banking. If the traders and their bank officers don't understand the risk they are taking, it's time they should study the articles written by Mr. Butler. After studying the rarity of silver in the world they will stop holding the price of silver down, and they will look to cover their position of 250 million ounces of silver.
It is only a question of time when the shortage of silver will come. The USA and other world countries donate gold to the IMF but not silver. Why? They don't have silver. The USA has enough gold for 1,000 years of future defense needs, and not one day’s worth of silver. There is no extra silver left in the world.
Don't forget for one moment that silver is a very important strategic metal for the defense industry, and in a case of a shortage, and no silver available, the big short sellers will have jeopardized the national security of the USA. We need today for defense more silver that we can mine in the USA. We are going to depend in the future on imports of silver from unreliable sources. Today’s naked short sellers will be facing the courts and will be charged not only with capping the price for years and producing the world shortage, but also for endangering the national security of the USA.
With all the contraction of world economies, silver is still in a deficit when investment demand is counted. How the naked shorts will cover their obligations at the same time the users and the investors want more silver I don’t know. It will not happen with low prices.
If you think like me that silver is in short supply and sooner or later a shortage will come, you should get your silver before it goes up. All these things these big shorts have been doing to keep the price low makes the coming price rise more certain. When it comes, it will go so high the whole world will ask how this could happen.
March 31, 2009
According to the OCC’s latest data release, U.S. banks, led by JPMorgan Chase, caused to be liquidated, under intentional duress, more than $20 billion of gold and as much as $9.5 billion of silver in Over The Counter (OTC) derivatives transactions during the fourth quarter of 2008. These derivatives are highly leveraged transactions mostly held by hedge funds and other large investors on the long side and big banks on the short side. While the OCC declares it is responsible for regulating U.S. banks, there is no regulation of these OTC derivatives by anyone. All the OCC does is compile the statistics. This was the largest amount of gold and silver derivatives ever liquidated in a single quarter in history. In the case of silver, more than 50% of all the OTC silver derivatives held by U.S. banks were liquidated in the fourth quarter. I doubt we will see such a large liquidation ever again.
In terms of ounces, this forced liquidation was the equivalent of 25 million ounces of gold and as much as 960 million ounces of silver, at the prices that prevailed during the quarter. These amounts are equal to 250,000 COMEX gold contracts and 192,000 COMEX silver contracts. Remarkably, in the case of silver, this is double the entire current total current open interest in COMEX silver futures, the largest listed and regulated silver market in the world. It is also much larger than annual mine production, total production (including recycling) and total consumption. As I hope you will see, it is not possible for such amounts to be accidentally liquidated within a three-month period. This was a very intentional liquidation.
You can view the data yourself. Here is the OCC’s Quarterly Report on Bank Derivatives Activities - http://www.occ.gov/deriv/deriv.htm The pertinent gold and silver data can be found in each quarterly report in table 9, on page 30. It will be necessary to compare different quarterly reports to measure changes in holdings. Look at totals for all maturities. Gold is broken out separately, silver is in the precious metals category. (Those that analyze this report consider silver to represent 80% to 100% of the precious metals category).
The OCC reports clearly confirm that total gold derivatives (all maturities) declined from $127.2 billion from September 30, 2008 to $106.9 billion on December 31, a reduction of $20.3 billion. Since the price of gold was slightly higher on December 31st than it was on September 30th, the reduction is marginally understated. Since the average price of gold during the fourth quarter was around $800, the $20.3 billion reduction in derivatives amounted to 25.38 million ounces ($20.3 billion divided by $800). JPMorgan accounted for more than 85% of the reduction in gold derivatives during the fourth quarter.
In silver, there was a decline in total precious metals derivatives from $18.7 billion on September 30th to $9.1 billion on December 31st, a reduction of $9.6 billion. Since the price of silver was 5.5% lower on December 31st than it was on September 30th, the reduction may be somewhat overstated. Since the price of silver averaged around $10 per ounce during the fourth quarter, as many as 960 million ounces of equivalent silver were liquidated. JPMorgan and HSBC accounted for 76% of the total amount liquidated.
During the fourth quarter of 2008, I was repeatedly struck by the viciousness of the sell-off in silver, as we twice plunged below $9 an ounce, down almost 60% from the highs of a year ago. I was puzzled why the manipulators had continued to force the price so low, considering that the bulk of the COMEX liquidation was over by September and October. After all, there was no evidence of physical selling of silver, as all categories and measurements of investor demand for physical silver grew during the quarter. This OCC report explains the exaggerated price sell-off completely, despite strong investor demand for silver.
Quite simply, the amount of paper silver (and gold) transacted in the OTC market dwarfed what took place in the real physical market. Further, since the OTC is so opaque, the transparent paper COMEX market was used to set the price for, and cause, the massive liquidation in the larger OTC market. The price that is disseminated from the COMEX is the price that the world goes by and prices all silver (and gold) transactions. Miners, refiners, industrial consumers, investors and paper hedge fund speculators all price off the COMEX. Control the COMEX price and you control the world of silver (and gold). Hedge funds and other large leveraged speculators holding long positions were faced with increasing margin calls as COMEX silver prices were manipulated lower and they sold to the big banks who were short and bought back their shorts. That’s why the concentrated short position is so illegal and manipulative. In fact, this same concentration exists, in spades, in the OTC market as well. Just read the OCC reports.
Further, the OCC reports prove that JPMorgan not only inherited from Bear Stearns the massive COMEX silver short position in March of 2008 (as well as a COMEX gold short position), it also inherited from Bear Stearns a much larger OTC silver and gold short position. From December 31, 2007 to March 30, 2008, JPMorgan’s OTC silver short position grew from $4.9 billion to $12.5 billion. Adjusting for the 16% price increase in silver between those dates, JPMorgan’s silver short position grew by more than 400 million ounces to as much as 735 million ounces, from 335 million ounces. This is separate and distinct from and in addition to their COMEX silver short position.
I know these numbers are shocking. That’s why you must take some time to study the data for yourself. Even if silver is not 100% of the precious metals category, any reasonable percentage will still result in shocking numbers. More than that, such a large and concentrated short position, on both the COMEX and in the OTC market should explain the motive and stakes involved in the great silver flush out of 2008. This silver short position needed to be reduced by any means necessary, due to the unthinkable exposure that would exist if it were not closed out. But so large was this short exposure that while JPM did succeed in reducing its short silver exposure from the highest level in its history when it took over Bear Stearns, to the lowest level in three years, there still exists a silver short exposure of hundreds of millions of ounces.
That the U.S. Government has aided and abetted JPMorgan in this illegal endeavor you should find as repugnant as I do. U.S. Government agencies, like the Treasury Department and the CFTC are the ones publishing these data. The Treasury Department and the Federal Reserve arranged the JPMorgan/Bear Stearns takeover. How could they not be aware of and have sanctioned this historic silver liquidation? It is sickening. Officials should and must go to jail over this.
All this should reinforce the message to buy real silver. That such blatant and illegal efforts are being made to force investors to sell paper silver, should convince you all the more to buy and hold real silver while you can. That they have forced this much silver liquidation should give you a sense of just how valuable silver is, and to what price levels they expect it to climb to. Don’t listen to me, look at what they have done.
There is too much to write about this week to fit into one article. Therefore, I’m going to do something different. I plan to publish new articles on different (but related) topics tomorrow and the day after. Please check back for those articles.
In closing, I’d like to leave you with a You-Tube video that an inventive reader from Australia, John Christian, created, using Izzy’s last article. I think you’ll enjoy "The Silver War Cry"