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:
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.
Banco Azteca, with over 800 branches in Mexico, informs us that it will apply a new policy to the purchase and sale of silver "Libertad" ounces at all its branches.
In response to the restriction on supply of silver "Libertad" coins applied last week by the Bank of Mexico, Banco Azteca will proceed as follows:
Banco Azteca will seek to attract the re-sale of silver ounces in order to satisfy, as much as possible, the strong demand forecast for the year-end.
Therefore, Banco Azteca will raise the re-purchase price of silver from the public to where the re-purchased quantities equal the quantities sold to the public, always maintaining the necessary margin to cover costs.
If the price of re-purchased silver is too high, the supply from the selling public will surpass the demand of the silver-purchasing public.
If the price of the re-purchased silver is too low, the supply from the selling public will not be sufficient to cover the demand from the purchasing public.
Banco Azteca will seek to discover the intermediate point, which will balance the supply from the selling public with the demand from the purchasing public.
Banco Azteca had been looking forward to selling 250,000 silver ounces during the Holiday season. With the cutback in supply, current policy would cause Banco Azteca's inventory to fall to zero in the course of next week.
Sales will be much reduced, from here on, but at least the program adopted will have the virtue of demonstrating what the actual market price of silver ounces is in Mexico , independent of any relation to Comex silver prices.
Banco Azteca was informed by a source at Banco de Mexico, that the restriction of supply was due to a "very large foreign order for silver ounces".
***
The Mexican Civic Association Pro Silver does not accept this excuse, even if it were true, because in any case providing the Mexican people with silver ounces would have to be its Number One priority, and not supplying a foreign buyer while depriving Mexicans of silver ounces.
Furthermore, this Association was told years ago by an officer of Banco de Mexico that the Mexican Mint was capable of minting up to 10 million ounces of silver coins a year.
We believe the restriction of supply in silver ounces is meant to deprive the Mexican population of the possibility of seeking refuge in silver as a protection against financial and economic carnage, and to force Mexicans into depositing their savings in the Banking System, with its risks.
Oct 27, 2008
Hugo Salinas Price, President
Asociación Cívica Mexicana Pro Plata, A.C.
Mexico City
email: 254hsp@elektra.com.mx
website: http://www.plata.com.mx
Typically, stories of inflation and hyperinflation are accompanied by stories of food shortages, misery and pain. During some hyperinflations, people are reported to be so desperate to save their currency that they will buy bed pans or piles of horse manure to preserve the value of their wealth. Thank God we can still buy silver, instead!
The price of Rat Meat in Cambodia has increased 400% as investors flee from inflation!
http://news.yahoo.com/s/nm/20080827/od_uk_nm/oukoe_uk_cambodia_rats
Today, there is a world emergency, a world crisis that is being ignored, because silver is a neglected and forgotten metal and industry, and more eyes are on the banking crisis and on the election than on silver.
The silver markets are failing and breaking down. The COMEX fraud of allowing the sale of excessive and unbacked paper futures contracts is destroying the silver market. Too many silver dealers, refiners, and coin shops have relied on the COMEX price to set their own prices, although nothing was for sale and no silver came to market when those prices were set, and so they mostly all ran out of inventory.
If we do not solve the problem of the broken COMEX market, the world will continue to be plagued with shortages that will extend much further than the silver market, and into all other markets. We could end up with desperate food shortages, as investors who cannot find silver may end up purchasing food to protect their money, instead of silver, and if that happens, starvation on a world-wide scale could result. In fact, it has already begun with rising food prices worldwide as investors pour into grains as a result of inflation driving speculators into all commodities.
Price increases push US soy beyond reach of poor:
http://money.aol.com/news/articles/_a/bbdp/price-increases-push-us-soy-beyond-reach/163191
That is the danger of allowing COMEX fraud to continue unopposed. The best way to oppose COMEX fraud and end it, is not through letter writing campaigns to the CFTC, and not through police crackdowns from the SEC, nor from new regulation by Congress.
We don't need to use force to stop evil. We can overcome evil with good. Where the spirit of the Lord is, there is Liberty! We just need to understand, embrace, and create freedom.
And so, rather, the best way to oppose COMEX fraud and end it is to create an alternative free marketplace or free markets where silver can always be more and more freely bought and sold.
An alternative free market will end the fraud faster than you can imagine, much faster than any CFTC investigation, through the profit incentive to buy from one market to sell into another.
Have no fear. The profit incentive, and the ease of the use of the internet, will create the incentives to create that alternative market where our silver will be fairly valued, and freely traded.
Traders rightfully point out that if the COMEX price is fraudulently too low, then people would buy bars at COMEX, and sell into the free market, and make a killing.
After all, you can make much, much more on a 20% mark-up by quickly flipping silver and selling to investors than you can with a 100% mark up selling jewelry, because the jewelry market has slower turnover of product.
Example: If you can make 20% per transaction, and make 12 such transactions per year, only once a month, you can make 792% in a year!
See
http://www.smartmoney.com/compoundcalc/
for the math.
I might not be willing to risk my money to stand for delivery of a COMEX contract, but others will, if there is another market for them to easily sell into.
You could make even more money, 1200% per year, making a 5% profit spread if you bought in one liquid market and sold into another liquid high volume market once a week. Liquidity is key. Liquidity is crucial to the speed of trading, which aids turnover. Silver, by its nature, should always be extremely liquid.
At COMEX, liquidity in silver is thwarted by having a "delivery month" of an unreliable time frame, and not every month is a major delivery month. The Post Office, as dreaded as it is, is far more reliable than COMEX. COMEX also does not ship out silver, but makes you go there to get it.
Given that silver coins are selling at a $3-4 per ounce premium over the spot price, which is about a 30% premium or profit, then makers of silver coins and bars should be able to make huge profits, if they can find silver bars at COMEX prices to turn into coins!
This is how we know 1000 oz. silver bars are in short supply! Perhaps the recent shortage is at least partly a result of this month, September, being a delivery month.
But there's a bigger problem. A free market in silver with high volumes and low spreads does not exist. So, you can't go and buy silver from COMEX, to sell into a non-existent market.
Today, maybe neither market exists!
There are alternatives to COMEX, but none of them has the capacity to pick up the slack and carry the huge volumes of trade, and allow a trusted and reliable form of price discovery to take place.
For example, Fresnillo, the silver refinery in Mexico that refines about 90% of the silver in Mexico, which produces about 80 million ounces of silver per year, ships out 600,000 ounces of silver at a time, in 1000 oz. bars, 30,000 oz. per pallet at a time.
The world needs a market that can handle and service the needs of refiners such as Fresnillo, so they will ship to the free market or at free market prices; instead of to COMEX or to other places at COMEX prices.
Yes, there are the coin shops and online bullion dealers. But investors typically do not want 1000 oz. bars because they are ugly, not standard size, and too heavy at around 70 pounds. APMEX recently had more than 20 for sale for a few days, and they sold out, but that's not a very large volume, and they didn't sell at a much of a premium, only about 35 cents over spot.
Ebay is good because they only allow people to sell what they have, and there is a rating system in place to allow feedback on sellers reputations, and ebay allows competitive bidding to allow an odd form of price discovery to take place.
But ebay is not useful because we often do not see the final auction price at the last minute. And ebay is bad because fees are excessive with fees ranging from 10-15%! That's not a "free market", it's a rather costly market! Also, it is difficult to buy in volume, because there is limited product available. And fraud levels are still too high, and there are additional penalties on sellers. Another drawback to ebay is that there is no aggregation ability to place large orders over multiple auctions of standardized fungible products that are similar enough to be interchangeable. Nor can you use ebay to sell into anyone's standing bid for a standardized form of product. So ebay is mostly a one way market, not a two way market, like an exchange should be.
There is bulliondirect.com. But it, too, suffers from low volume, lack of product availability, product delivery delays, and difficulty of use.
There is craigslist.com. The advantage is that you can connect with people in your local area anonymously for cash to silver transactions, but there is no volume at all.
Goldmoney.com is another site where you can trade. But there is a restrictive trading limit of 1500 ounces of silver per day.
http://support.goldmoney.com/article.php?id=098
And there are other futures markets and exchanges in Tocom, Dubai, Shanghi, and elsewhere, but their volumes are much lower than at the COMEX, and like the COMEX, futures contracts can be created and sold to excess.
In any reasonable money exchange marketplace, gold should also be able to be traded for silver, and silver for gold, without having to move into fiat currencies. So, although my personal focus is on silver, I'm really talking about a new kind of silver and gold market exchange.
The world desperately needs a better silver market, in multiple locations around the world that cannot be shut down by desperate and dying governments that rely on paper money fraud, if the world is to survive the implosion and end of fraudulent futures contract trading.
I strongly believe that the most important features of a free market are to end fraudulent transactions of promises to deliver silver in the future that may not exist.
The fraud must end. That is the most important.
But also, perhaps next most important is to encourage high volumes by providing the best market structure at the lowest possible cost?
Readers, the world needs your help!
There are people who know how to make things happen, who can design specs, set up markets, hire programmers, set up verification systems, set up storage locations, and handle the logistics much better than I can. I'm merely a thinker, a theorist, and a writer. And I have a family, and I'm located in a small town, far away. I'm a horrible manager, and I don't like working with people as I have little patience for those who cannot understand right away, even though it sometimes takes me years to "get it". Anyone who has ever emailed me probably knows I'm "short tempered" that way.
Please give me feedback and share your thoughts, and I'll collect your emails and share your suggestions to inspire those people who are more people oriented and action oriented who can make this happen. What other features are important in the design of the most optimal and most free, free market for silver?
Topics for thought:
Ease of use? - OR - Verification of users?
Elimination of fraud? - OR - A Reliable and successful transaction history?
Standardization of bars? - OR - Verification of bars?
Bid/Ask trading at all hours? - OR - Once per day auction price setting?
Reduced speculation & Reduced leverage? - OR - Fully paid for trading?
Ability to handle small transaction sizes - OR - ability to handle large volumes through high minimum transaction sizes?
There is also the issue of cross border shipping logistics.
I'm doing my best to end world poverty by educating investors.
There may be limited silver, but there is unlimited wealth in silver. It just needs to be unlocked by a higher price that can be discovered by a functioning and honest free market in silver.
Sincerely,
If the Perth Mint has $880 million worth of silver and gold in inventory from their certificate program, to use as working inventory to make coins, then why aren't they producing many Australian coins that should be flooding the marketplace and available everywhere at close to spot prices?
Let me explain why I hammer Perth so mercilessly. The Perth Mint has issued silver certificates. Investors trust them. Perth has issued those silver certificates for a reason, a reason that silver investors should love.
As they are a mint, they need an "operating pool" of physical metal to use as inventory for operations, to be able to make silver coins to sell to the public in the form of one ounce rounds. This is a fantastic reason, and I would support that 100%, especially if they buy more silver as needed, buying one ounce for every ounce sold. In theory, that would mean that there could never be a silver shortage at the Perth Mint. There is especially no reason for a silver shortage to exist at Perth, given that Australia exports over 400 tonnes of silver each year! The Perth Mint could never run out of silver to sell if that program was run honestly, in stark contrast to the U.S. mint, which is suffering a shortage of blanks.
In fact, the current world-wide shortage of investment silver, such as one ounce coins, means that the world desperately needs a functional mint with plenty of silver for operations.
But Perth does not produce one ounce rounds for the public in bulk form at just above spot prices, as other mints do. Why not? Why can't they?
For example, the Canadian Mint produces silver Maples 3-5 million per year, and the U.S. Mint produces silver Eagles, about 10-20 million per year, and Austria is now producing silver Philharmonics, and France, I hear, may also start producing silver again, too.
http://www.monnaiedeparis.fr/actualite/eurosOrArgent.htm
And all of these are available at between $2-3 per ounce over the spot price, and sometimes now at over $4/oz., due to the shortages of silver.
In stark contrast, Perth produces much less, and they sell their 1 ounce coins at an average price of $61 per ounce!
ttp://www.perthmint.com.au/catalogue/discover-australia-landmarks-silver-coins.aspx
That's $48 over the spot price for Perth 1 oz. rounds! Isn't that a 369% premium over the spot price?!
What's the problem here? Shouldn't they be able to produce silver coins like the U.S., Canada, and Austria? Perhaps Perth doesn't have enough silver in their "working inventory" to produce more?
But they have issued $880 million worth of gold and silver certificates to the public, and therefore, should have plenty of working inventory. In fact, it is so much working inventory, that it amounts to an entire year's worth of investment demand for silver.
Net investment demand for silver is estimated at 60 million oz. by the CPM group, which, at $13/oz. is only $780 million!
Perth has is so much working inventory, that even if the Perth Mint had to wait for a 1 year hold time for delivery to replace their inventory, they would still be able to supply nearly 100% of the silver that the investment world needs, and they could supply it with no delays to the public whatsoever!
It is so much working inventory, that if the Perth Mint had to wait 1 month for supplies of all new silver, they could provide 12 times the world's annual silver demand, and all silver investors everywhere would be buying nothing but Perth Mint Australian one ounce coins, and no other forms of silver whatsoever.
If only 1/10th of the $880 million of gold and silver certificates is in silver (and they don't reveal what percentage it is), then that would be $88 million. Divide by $13 = 6.8 million ounces of silver. If that much were minted monthly, that would come out to 81 million one ounce rounds, which would be 4 times as many coins minted by the U.S. Mint.
Therefore, one would think that if the Perth Mint was honorable, that the Perth Mint should be producing far more silver ounces than the U.S. Mint each year, at a lower cost, and that we would see those in abundance in the marketplace.
But Perth does not issue coins like that. You cannot buy Australian bullion coins in bulk at APMEX, Tulving or any other major wholesaler. Why is that? I think the answer is obvious.
Where is the abundance of Perth Mint rounds? There is no abundance. They are scarce.
It appears to me that Perth's silver in their certificate program, "used for operations" was used to cover unprofitable operations, for years, and that in actual fact, they have no working inventory, or they have less than 1% of the $880 million worth of inventory, barely enough to meet some redemptions and orders on occasion.
Over 50 people have continually complained to me of shortages of silver from the Perth Mint, in my prior emails exposing them. Why are these people complaining to me? Do I have the words "Perth Mint Customer Service Rep" tattooed on my forehead, or in my disclaimer? No.
Sell or redeem your Perth Mint certificates, quickly
Nadler, Kitco, Perth, Matthey; Sold Out! September 3, 2008
Perth Mint Crisis Watch 5 June 6, 2008
Perth Mint Crisis Watch May 23, 2008
Perth Mint Crisis: Solutions and Ramifications May 23, 2008
To the largest newspapers in Australia May 22, 2008
To the government of Western Australia May 21, 2008
Poor Prospects for Kitco/Perth/Matthey May 19, 2008
Kitco / Perth Mint / AGR Matthey / Bullion Bank Connections May 17, 2008
Will Kitco Sue me?! May 16, 2008
Silver Shortage Drives Men Nuts March 31, 2008
Perth Mint and Kitco Scheme Exposed March 26, 2008
See what others are saying about the Nadler/Kitco/Perth/Matthey issues, here:
https://www.kitcomm.com/showpost.php?p=343129&postcount=33
https://www.kitcomm.com/showthread.php?t=22303&page=4
Sincerely,
Jason HommelMy offer:
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