SILVER MEMO
Early September 2007
Ted Butler recently prepared this memo for our broker staff:
The Commitment of Traders Report (COT) released Friday (8/24) was mega-bullish for silver (and gold). In fact, the COT was bullish for a wide variety of commodities, including the Euro.
The amount of liquidation of speculative long positions, and corresponding commercial buying in silver, was truly dramatic. This has left the market in a structure that suggests very little downside risk and tremendous upside potential.
The ironic thing is that we may have just witnessed something I had long anticipated, but, admittedly, was not expecting at this time. I’m speaking of the "mother of all sell-offs" in which the dealers rig the market so severely to the downside that every possible speculative leveraged long is flushed from the market. I think that was what we got on Thursday, Aug 16, when silver touched $11 intraday.
If this was the ultimate sell-off I had long-envisioned, it could be followed by the Big One to the upside, now that the decks have been cleared of so many margined speculative longs. That has always been my scenario for what happens after the ultimate sell-off. All it will take for this to be the big one to the upside is for the dealers to not sell short when the next rally commences. As you know, my recent efforts have been geared in that direction.
Even if this not the big one to the upside, we should get a very decent rally, at least a dollar or two. I will be disappointed and surprised if that’s all we get.
In any event, this is an extraordinarily good time to buy silver with both hands. It is hard for me to imagine a better time. Today’s price weakness is a gift that must not be refused. With Friday’s COT confirming the clean out, buying silver on this price weakness, right now, is the very best thing you can do for your clients.
THE PRICE DROP
By Theodore Butler
Make no mistake, the intent of the recent silver sell-off, was to liquidate as many leveraged traders as possible. It not only applied to silver, but many other commodities and currencies. A quick review of the Commitment of Traders (COT) market structure, in the markets involved, shows that whatever side the large non-commercial speculators (hedge funds and other traders) were most heavily weighted, the markets moved sharply the other way. Thus, the price moves in a great number of seemingly unrelated markets, from metals to soybeans to oil, moved against the large speculators. It was a perfectly executed campaign against the speculators. Silver experienced the most extreme and violent sell off of all. On a percentage basis, silver’s price fell the most of any market. Silver was more oversold than at any point in its history, according Relative Strength Indicators (RSI) and the amount by which silver fell below its moving averages. The silver manipulators were ready and able to take unfair advantage of the weakness in other markets to collusively pull their bids in silver in order to let the price plummet and force leveraged traders to cough up long positions. Absolutely nothing in the world of supply and demand was responsible for the big silver price sell-off. There was no big production increases, or fall-off in demand. Inventories didn’t change. This was all about paper contract shuffling.
TIME TO ACT
Commodity law prohibits the regulators from publicly releasing the identity of the largest traders in any commodity. That’s why the CFTC only identifies the largest traders in every commodity as the "4 or less" and "8 or less" largest traders. This regulation was enacted many decades ago for the well-intended purpose of protecting the identity of large traders to prevent them being put in a compromised trading position. While the original intent of this identity protection may have been valid, that same law was never intended to protect and shield the identity of those engaged in manipulation. I believe that’s what this regulation has morphed into. After all, the primary intent of commodity law is to prevent manipulation, which is exactly as it should be. Protecting the identity of large traders is at odds with the transparency we encourage in financial markets.
Recently I wrote a letter to the CEO of the Bank of Nova Scotia. They own Mocatta Metals. Mocatta has a historical record of holding a large short position in COMEX silver futures, including holding a major short position against the Hunt Brothers’ long position in the fabled silver manipulation in 1980. Public reports at that time indicated that Mocatta was under extreme financial pressure in the spike in silver prices and was instrumental in getting the rules changed at the COMEX. This has been cited as attributing to the subsequent collapse. In my opinion, Mocatta has been a large silver short, on and off, ever since.
There’s no doubt that Mocatta is a leader, if not the largest dealer in silver in the world. They are the head of the London Silver Fix of LBMA, as well as a leading clearing member of the COMEX. Mocatta was sold in late 1997, to the Bank of Nova Scotia (Scotiabank) by Standard Chartered Bank of London, and now goes by the name ScotiaMocatta. I want to be very clear that Scotiabank is a highly respected financial institution, with an impressive 175-year old history and an excellent high reputation to match.
On June 25, I wrote (via e-mail) to the CEO of Scotiabank, Mr. Richard Waugh, to warn him that the silver market was manipulated by an unprecedented concentrated short position. My research had indicated that his bank’s precious metals subsidiary, ScotiaMocatta, was probably involved. My intent was to put him on notice and do what I could do to undermine the silver manipulation. I wrote that my communication was private and it was not my intent to harm the good reputation of Scotiabank.
I was (somewhat) surprised to receive an acknowledgement from Scotiabank, the next day, June 26, from Mr. Waugh’s office, stating that they would review my comments with the department involved. On July 16, I received another reply from Scotiabank, indicating that they had reviewed my allegations and found no evidence of wrongdoing. The reply also indicated that they disagreed with my "reading" of the COT.
Inasmuch as I had not offered any interpretation of the COT, other than there was a concentrated net short position of over 250 million ounces held by 4 or less traders, I wrote back the next day, July 17, to Mr. Waugh saying that I offered no interpretation, but I was stating an incontrovertible fact. I then told him that the only issue was whether Mocatta held a significant short position in COMEX silver futures, either for its own account or as a clearing broker for a customer. If he declared that Mocatta was not short, I would take him at his word and drop the matter. If he could not, I would have to assume that they were short, as would any reasonable person. I also warned him, once again, of the great risk to the bank’s finances and reputation should it turn out that Mocatta was short silver, even if they claimed it was "hedged" with other derivatives.
On July 24, I sent Mr. Waugh my article, "Still The Same". In this article, I explained the silver manipulation in detail and described how the senior management of the large financial companies involved in the manipulation were probably unaware of their firms’ involvement. In truth, I wrote that article specifically with Scotiabank in mind, although it certainly applied to all the firms involved. The next day, Scotiabank responded, saying they were reviewing my additional comments and would get back to me.
On August 9, not having heard from Scotiabank, I wrote to Mr. Waugh, expressing my puzzlement over what was delaying his response, since manipulation was the most serious market crime possible, and this particular silver manipulation was a crime in progress. Once again, I wrote that this was a simple matter of determining whether Mocatta was short COMEX silver or not.
I also reiterated that even if Mocatta held offsetting hedges, that might not excuse manipulation. It was also possible the counter parties might disavow any counterbalancing offsets if manipulation was proven. Lastly, I pointed out that Scotiabank’s public earnings statements indicated a Value at Risk (VaR) of only $1.5 million a day for their entire commodity exposure, whereas if Mocatta did hold a significant short silver position on the COMEX, the true VaR could be a hundred times that amount, or more.
Scotiabank responded on August 15, that an additional and independent investigation found no wrongdoing on their part and they considered the matter now closed. I responded, the next day, that they did not provide any explanation to substantiate their finding, nor did they deny that they were short COMEX silver futures in a significant amount. I wrote that I planned to write of this matter in the near future and offered to send them advance copies of any article I wrote about them, if they requested I do so. They made no such request.
My intent is to help terminate the silver manipulation in any above board and legitimate manner I can think of. My intent is not to harm Scotiabank. It was precisely because I suspected Mocatta as a big silver short that I wrote to Scotiabank in the first place, looking to resolve the issue. After this exchange of correspondence over the past several weeks, my suspicions are even stronger.
I am convinced that silver is manipulated and I think I have explained the manipulation, in terms of commodity law. Now it is time to do more than explain. Because neither the CFTC nor the COMEX will do their job, and because they have shielded the big shorts, a new approach must be taken. That’s why I wrote to Scotiabank.
Now, someone might ask, "why should Scotiabank answer to Butler when he asks if they are short or not? I would answer that because the issue, possible manipulation, is important enough. If they were not short it would be foolish for them not to declare that fact. It’s not who is asking the question, it’s the nature of the question. After all, they thought the issue was important enough to run two separate inquiries, including one that was independent.
The problem for Scotiabank, as well as for the CFTC and the COMEX, and the concentrated shorts is that they can’t allow a legitimate and open discussion of this issue. With the exception of gold, there is no other market that raises the troubling issues that silver does. When pressed, the CFTC came up with a long-winded and non-responsive reply that was not germane. They never answer simple questions with simple answers. The supposed self-regulator, the NYMEX/COMEX, does not even bother to answer, even when asked directly and publicly. That is shameful. Now that they are a public company, they must be forced to respond to this concentration matter.
I don’t think I am wrong, but anything is possible. However, the issue is important and specific enough that it deserves to be addressed. This is a matter that can be quickly resolved. So let’s try to resolve it. Because the entities involved don’t want to address this issue openly, everything possible must be done to bring this matter into the open. I am only one man and it is relatively easy for the entities protecting the silver shorts to ignore me. But there is great strength in numbers, and if many press them, it will be harder for them to pretend the matter is not important.
It is time for all interested parties to participate. It is time to contact the CFTC, the COMEX and Scotiabank and demand simple answers to simple questions. Please don’t include a laundry list of perceived wrongdoings in the world. This is about the concentrated silver short position and manipulation. The key is specificity. You must ask very specific questions. I’ll provide suggestions and e-mail addresses below. Of course, you can reference this article and send it along with your questions.
I don’t necessarily expect the concentrated shorts to cave-in and fold immediately, but I promise you that if the regulators can be forced to publicly discuss this matter, I am sure I can legitimately counter any defense or excuse they come up with. All I am asking is a opportunity to have this issue fully-aired, once and for all.
My e-mail exchange with Scotiabank was polite and courteous, on their part and mine. It is important to maintain that. Even though this is about the silver concentrated short position, I appeal to gold investors to participate. There are many more gold investors and the more who write, the more effective it will be. Next to silver, gold comes closest to replicating silver on the concentration issue. If the concentrated short position in silver is resolved and the manipulation is broken, then it stands to reason that gold could benefit immensely, as many of the big traders short silver are also short gold. But I ask gold investors who write to refrain from introducing gold manipulation issues, as that widens the scope and gives the regulators more wiggle room.
In contact with Scotiabank, I would ask these questions;
Does ScotiaMocatta hold a significant short position in COMEX silver futures for itself or for customers?
Is it proper for Scotiabank to be speculating in silver?
Is Scotiabank properly reporting its risk profile in silver?
Please e-mail to the attention of Mr. Richard Waugh, CEO
mail.president@scotiabank.com, or write: Mr. Richard E. Waugh, President and Chief Executive Officer, Scotiabank, 44 King St. West, Toronto, ON M5H 1H1
In any contact to the CFTC and the NYMEX/COMEX, I would ask these questions;
If a net concentrated silver short position, held by 4 or less traders, of the equivalent of over 260 million ounces is not manipulative to price, what amount would be manipulative?
Should a trader’s identity be shielded if allegations of manipulation are made?
Please list those markets where the net concentrated short position, held by 4 or less traders, is greater than 150 days of global production, as is the case in silver.
For the CFTC, please e-mail to the attention of the Hon. Walter Lukken, Acting Chairman wlukken@cftc.gov or write: Hon. Walter Lukken, Acting Chairman, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581
For the NYMEX/COMEX, please e-mail to the attention of Mr. James Newsome, CEO jnewsome@nymex.com or write: James Newsom, World Financial Center, One North End Avenue, New York, NY 10282-1101
Finally, it is a shame that questions about such important issues are not being asked by the leaders of the silver industry, particularly the silver mining companies. Such questions coming from them would stand a better chance of resolving the manipulation than from outsiders. If you are a shareholder of any company involved in either silver or gold, please contact those companies and ask them to get involved. "Getting involved" doesn’t mean that mining management leaders must take any great personal risk, just ask the same questions that I’m asking.
By Theodore Butler
Make no mistake, the intent of the recent silver sell-off, was to liquidate as many leveraged traders as possible. It not only applied to silver, but many other commodities and currencies. A quick review of the Commitment of Traders (COT) market structure, in the markets involved, shows that whatever side the large non-commercial speculators (hedge funds and other traders) were most heavily weighted, the markets moved sharply the other way. Thus, the price moves in a great number of seemingly unrelated markets, from metals to soybeans to oil, moved against the large speculators. It was a perfectly executed campaign against the speculators. Silver experienced the most extreme and violent sell off of all. On a percentage basis, silver’s price fell the most of any market. Silver was more oversold than at any point in its history, according Relative Strength Indicators (RSI) and the amount by which silver fell below its moving averages. The silver manipulators were ready and able to take unfair advantage of the weakness in other markets to collusively pull their bids in silver in order to let the price plummet and force leveraged traders to cough up long positions. Absolutely nothing in the world of supply and demand was responsible for the big silver price sell-off. There was no big production increases, or fall-off in demand. Inventories didn’t change. This was all about paper contract shuffling.
TIME TO ACT
Commodity law prohibits the regulators from publicly releasing the identity of the largest traders in any commodity. That’s why the CFTC only identifies the largest traders in every commodity as the "4 or less" and "8 or less" largest traders. This regulation was enacted many decades ago for the well-intended purpose of protecting the identity of large traders to prevent them being put in a compromised trading position. While the original intent of this identity protection may have been valid, that same law was never intended to protect and shield the identity of those engaged in manipulation. I believe that’s what this regulation has morphed into. After all, the primary intent of commodity law is to prevent manipulation, which is exactly as it should be. Protecting the identity of large traders is at odds with the transparency we encourage in financial markets.
Recently I wrote a letter to the CEO of the Bank of Nova Scotia. They own Mocatta Metals. Mocatta has a historical record of holding a large short position in COMEX silver futures, including holding a major short position against the Hunt Brothers’ long position in the fabled silver manipulation in 1980. Public reports at that time indicated that Mocatta was under extreme financial pressure in the spike in silver prices and was instrumental in getting the rules changed at the COMEX. This has been cited as attributing to the subsequent collapse. In my opinion, Mocatta has been a large silver short, on and off, ever since.
There’s no doubt that Mocatta is a leader, if not the largest dealer in silver in the world. They are the head of the London Silver Fix of LBMA, as well as a leading clearing member of the COMEX. Mocatta was sold in late 1997, to the Bank of Nova Scotia (Scotiabank) by Standard Chartered Bank of London, and now goes by the name ScotiaMocatta. I want to be very clear that Scotiabank is a highly respected financial institution, with an impressive 175-year old history and an excellent high reputation to match.
On June 25, I wrote (via e-mail) to the CEO of Scotiabank, Mr. Richard Waugh, to warn him that the silver market was manipulated by an unprecedented concentrated short position. My research had indicated that his bank’s precious metals subsidiary, ScotiaMocatta, was probably involved. My intent was to put him on notice and do what I could do to undermine the silver manipulation. I wrote that my communication was private and it was not my intent to harm the good reputation of Scotiabank.
I was (somewhat) surprised to receive an acknowledgement from Scotiabank, the next day, June 26, from Mr. Waugh’s office, stating that they would review my comments with the department involved. On July 16, I received another reply from Scotiabank, indicating that they had reviewed my allegations and found no evidence of wrongdoing. The reply also indicated that they disagreed with my "reading" of the COT.
Inasmuch as I had not offered any interpretation of the COT, other than there was a concentrated net short position of over 250 million ounces held by 4 or less traders, I wrote back the next day, July 17, to Mr. Waugh saying that I offered no interpretation, but I was stating an incontrovertible fact. I then told him that the only issue was whether Mocatta held a significant short position in COMEX silver futures, either for its own account or as a clearing broker for a customer. If he declared that Mocatta was not short, I would take him at his word and drop the matter. If he could not, I would have to assume that they were short, as would any reasonable person. I also warned him, once again, of the great risk to the bank’s finances and reputation should it turn out that Mocatta was short silver, even if they claimed it was "hedged" with other derivatives.
On July 24, I sent Mr. Waugh my article, "Still The Same". In this article, I explained the silver manipulation in detail and described how the senior management of the large financial companies involved in the manipulation were probably unaware of their firms’ involvement. In truth, I wrote that article specifically with Scotiabank in mind, although it certainly applied to all the firms involved. The next day, Scotiabank responded, saying they were reviewing my additional comments and would get back to me.
On August 9, not having heard from Scotiabank, I wrote to Mr. Waugh, expressing my puzzlement over what was delaying his response, since manipulation was the most serious market crime possible, and this particular silver manipulation was a crime in progress. Once again, I wrote that this was a simple matter of determining whether Mocatta was short COMEX silver or not.
I also reiterated that even if Mocatta held offsetting hedges, that might not excuse manipulation. It was also possible the counter parties might disavow any counterbalancing offsets if manipulation was proven. Lastly, I pointed out that Scotiabank’s public earnings statements indicated a Value at Risk (VaR) of only $1.5 million a day for their entire commodity exposure, whereas if Mocatta did hold a significant short silver position on the COMEX, the true VaR could be a hundred times that amount, or more.
Scotiabank responded on August 15, that an additional and independent investigation found no wrongdoing on their part and they considered the matter now closed. I responded, the next day, that they did not provide any explanation to substantiate their finding, nor did they deny that they were short COMEX silver futures in a significant amount. I wrote that I planned to write of this matter in the near future and offered to send them advance copies of any article I wrote about them, if they requested I do so. They made no such request.
My intent is to help terminate the silver manipulation in any above board and legitimate manner I can think of. My intent is not to harm Scotiabank. It was precisely because I suspected Mocatta as a big silver short that I wrote to Scotiabank in the first place, looking to resolve the issue. After this exchange of correspondence over the past several weeks, my suspicions are even stronger.
I am convinced that silver is manipulated and I think I have explained the manipulation, in terms of commodity law. Now it is time to do more than explain. Because neither the CFTC nor the COMEX will do their job, and because they have shielded the big shorts, a new approach must be taken. That’s why I wrote to Scotiabank.
Now, someone might ask, "why should Scotiabank answer to Butler when he asks if they are short or not? I would answer that because the issue, possible manipulation, is important enough. If they were not short it would be foolish for them not to declare that fact. It’s not who is asking the question, it’s the nature of the question. After all, they thought the issue was important enough to run two separate inquiries, including one that was independent.
The problem for Scotiabank, as well as for the CFTC and the COMEX, and the concentrated shorts is that they can’t allow a legitimate and open discussion of this issue. With the exception of gold, there is no other market that raises the troubling issues that silver does. When pressed, the CFTC came up with a long-winded and non-responsive reply that was not germane. They never answer simple questions with simple answers. The supposed self-regulator, the NYMEX/COMEX, does not even bother to answer, even when asked directly and publicly. That is shameful. Now that they are a public company, they must be forced to respond to this concentration matter.
I don’t think I am wrong, but anything is possible. However, the issue is important and specific enough that it deserves to be addressed. This is a matter that can be quickly resolved. So let’s try to resolve it. Because the entities involved don’t want to address this issue openly, everything possible must be done to bring this matter into the open. I am only one man and it is relatively easy for the entities protecting the silver shorts to ignore me. But there is great strength in numbers, and if many press them, it will be harder for them to pretend the matter is not important.
It is time for all interested parties to participate. It is time to contact the CFTC, the COMEX and Scotiabank and demand simple answers to simple questions. Please don’t include a laundry list of perceived wrongdoings in the world. This is about the concentrated silver short position and manipulation. The key is specificity. You must ask very specific questions. I’ll provide suggestions and e-mail addresses below. Of course, you can reference this article and send it along with your questions.
I don’t necessarily expect the concentrated shorts to cave-in and fold immediately, but I promise you that if the regulators can be forced to publicly discuss this matter, I am sure I can legitimately counter any defense or excuse they come up with. All I am asking is a opportunity to have this issue fully-aired, once and for all.
My e-mail exchange with Scotiabank was polite and courteous, on their part and mine. It is important to maintain that. Even though this is about the silver concentrated short position, I appeal to gold investors to participate. There are many more gold investors and the more who write, the more effective it will be. Next to silver, gold comes closest to replicating silver on the concentration issue. If the concentrated short position in silver is resolved and the manipulation is broken, then it stands to reason that gold could benefit immensely, as many of the big traders short silver are also short gold. But I ask gold investors who write to refrain from introducing gold manipulation issues, as that widens the scope and gives the regulators more wiggle room.
In contact with Scotiabank, I would ask these questions;
Does ScotiaMocatta hold a significant short position in COMEX silver futures for itself or for customers?
Is it proper for Scotiabank to be speculating in silver?
Is Scotiabank properly reporting its risk profile in silver?
Please e-mail to the attention of Mr. Richard Waugh, CEO
mail.president@scotiabank.com, or write: Mr. Richard E. Waugh, President and Chief Executive Officer, Scotiabank, 44 King St. West, Toronto, ON M5H 1H1
In any contact to the CFTC and the NYMEX/COMEX, I would ask these questions;
If a net concentrated silver short position, held by 4 or less traders, of the equivalent of over 260 million ounces is not manipulative to price, what amount would be manipulative?
Should a trader’s identity be shielded if allegations of manipulation are made?
Please list those markets where the net concentrated short position, held by 4 or less traders, is greater than 150 days of global production, as is the case in silver.
For the CFTC, please e-mail to the attention of the Hon. Walter Lukken, Acting Chairman wlukken@cftc.gov or write: Hon. Walter Lukken, Acting Chairman, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581
For the NYMEX/COMEX, please e-mail to the attention of Mr. James Newsome, CEO jnewsome@nymex.com or write: James Newsom, World Financial Center, One North End Avenue, New York, NY 10282-1101
Finally, it is a shame that questions about such important issues are not being asked by the leaders of the silver industry, particularly the silver mining companies. Such questions coming from them would stand a better chance of resolving the manipulation than from outsiders. If you are a shareholder of any company involved in either silver or gold, please contact those companies and ask them to get involved. "Getting involved" doesn’t mean that mining management leaders must take any great personal risk, just ask the same questions that I’m asking.
AN EXCELLENT LETTER TO THE CFTC FROM A READER
Dear Sir,
I am quite concerned with a situation that has been going on for rather a long time on the COMEX. The situation is an extreme concentration of silver futures contracts (net short) being held by four or fewer traders. My concern comes from weekly examination of the COT report put out by the CFTC.
I am not attempting to in any way interpret any COT report. I am merely stating what the report itself says.
As an example, the 31 July 2007 COT for silver states that 4 or less traders are net short 265,552,000 troy ounces of silver.
Total Commercial Net Short Contracts: 46935
Open Interest Contracts: 118550
4 or less Net Short Contracts: 53110
8 or less Net Short Contracts: 64728
4 or less Net Short Troy Ounces: 265,552,000
This an enormous amount of silver and dwarfs the amount of concentration found in a COT report for any other commodity. This huge amount is equivalent to over 150 days of silver production for the entire planet. Whether one, two, three or four entities are short over 50,000 silver contracts, what possible commercial purpose could such a position have except to attempt to manipulate the price level of silver far below the price it would have in the absence of such a concentrated short position. This amount exceeds the entire silver inventories of the COMEX and silver ETF combined. I know of no other market where the net concentrated short position, held by four or less traders is greater than 150 days of global production of a commodity.
I'm sure if four or less traders attempted to accumulate over 50,000 contracts net long that the CFTC would have put a stop to it long ago as an obvious attempt to manipulate the price level of silver far above the price it would have in the absence of such a concentrated long position. If the Hunt brothers had tried their shenanigans on the short side rather than on the long side, would regulators have looked the other way? I don't think so. Perhaps it is who the holders are rather than what they are holding, or why. That would indicate that regulatory officials regard certain entities as above the law. I sincerely hope that is not the case. That is the sort of thinking that led to President Nixon having to resign in disgrace.
As a citizen, taxpayer and voter, I am asking for a reply from you specifically addressing the following questions:
1.Do you think it is proper that the identity or identities of the four or less traders should be withheld from public scrutiny when a prima facie case of market manipulation could be made based on the COT reports issued by the CFTC?
2.If you think that the net short position of over 50,000 contracts, equivalent to over 150 days of silver production for the entire planet, by four or less traders is not evidence of manipulation, how large a position would it take to indicate manipulation?
3.Are you aware of any markets where the net concentrated short position, held by four or less traders, is greater than 150 days of global production?
4.What possible commercial purpose could such an extremely concentrated short position have except to attempt to manipulate the price level of silver far below the price it would have in the absence of such a concentrated short position?
5.What do you, in your official position, having been made aware of this extreme concentration of silver futures contracts (net short) being held by four or fewer traders, based on official CFTC reports, going to do about it?
6.If you, in your official position, having been made aware of this extraordinary situation, feel it is unnecessary to take any sort of corrective action, are you willing to accept the publicity and consequences that may result if, in the future, a case for attempted manipulation is proven in a court of law?
I await your reply and thank you for your time and consideration.
Sincerely,
DCO
Oklahoma
BLAME GAME
By James R. Cook
Quite a few years ago the late silver guru, Jerome Smith, came to visit my company. We had a nice few days talking about economics, the government and silver. Jerome was the ultimate government hater. He claimed that whatever bad happened in the world, if you looked far enough, you would see the government caused it. I was pretty skeptical about that generalization. However, from time to time my mind would return to that statement and leave me wondering.
We’ve had some tragedies in Minnesota lately. The most recent was a flood in the southeastern part of the state. Numerous trout streams, valleys and small communities make up the area. A heavy rainstorm turned the creeks and streams into raging torrents that tore away homes and coated the towns in mud. Lives were lost. One young man gave up his life to save his wife. "Take care of the children," he instructed as he was swept away.
On top of the hills surrounding the streams are farms. To the west the valleys peter out, replaced by tens of thousands of acres of farmland. Virtually all this land is tiled and drains into ditches or into the headwaters of the trout streams. No fields, low areas or ponds are left to absorb and hold water. It drains off quickly. Most assuredly this runoff accounts for the severe flooding, building loss and deaths. The blanket of mud the villagers complain about is really topsoil from the farmland.
Where does the government come in? They paid for the farmers to install tile and dig all the drainage ditches. They subsidized the farmers to "clean up" their land. No thought was given to those poor souls downstream where the excessive runoff wreaks havoc.
You’ve heard about the bridge tragedy in Minneapolis. Thirteen people died while more than a hundred were miraculously spared. The politicians and newspaper columnists are blaming government for ignoring clear warnings of a failing bridge span.
Jerome Smith was wrong when it comes to natural disasters. You can’t blame the government for a hurricane such as the one that hit New Orleans. On the other hand, you can blame the government for building and monitoring dikes that were clearly inadequate. The aftermath of the storm revealed a high level of government incompetence. Unfortunately, the horse was out of the barn by the time the government rode up.
Government has no bottom line. Businesses cut costs and try to spend less while government aims to expand its budget and spend more. Government relies more on degrees and credentials than merit. They also are huge affirmative action employers, a policy which puts race and gender ahead of merit. Government employees are bound by vast numbers of rules and regulations. Creativity and innovation suffer. Since you can make more money in the private sector, entrepreneurs and self starters that get things done are missing from government.
Sad to say, the government is in charge of our money. They have a monopoly. Years ago gold evolved as money. Paper itself could never evolve into money. It had to be linked to gold. Then government cut the link. They did that because gold money could not be created out of thin air, printed in bales or expanded through credit. That was the chief excellence of gold. The government and the politicians could not spend, subsidize, socialize and squander as much with gold money. They got rid of it. Now gold as money is a quaint, historical memory. Money has taken on a whole different meaning.
We do not know currently whether we are in the eye of the liquidity storm or whether it has passed. We do know that trillions of dollars are on shaky ground and trillions would be required to bail out the losers and the plungers. Jim Sinclair warns, "This is the first episode of a meltdown in financial instruments that represent between $20 to $30 trillion dollars." As predicted by the Austrian School of Economics, we are careening from one crisis to another. The monetary authorities have endangered our money to the extent the government probably has to support our stock and bond markets, and perhaps, even real estate.
Do you totally trust the government’s management of our money, economy and markets? You should be skeptical when you see how they inflate like mad to keep every crisis from worsening. It’s always the same cure, water down the dollar. That is all they know. An abundance of anything reduces its value. Currency debasement can get out of hand. The low inflation that everyone seems to love can turn into something much worse. Ultimately there is no good outcome. Hope for the best, but make some preparation for the worst.
SILVER REVIEW
By Theodore Butler
Silver is a material known, mined, used, and valued since the dawn of civilization. It will be used and valued until civilization ends. For the past 150 years or so, tremendously varied and new uses were discovered for this age-old material, which contributed to the progress and modernization of our society. This came about because silver is the best conductor of electricity and heat, the best reflector of light, is integral in the photographic process and has important health benefits. Because of all these new, growing and unanticipated uses of this material, demand has greatly exceeded production for more than 60 years. This has necessitated the draw down and consumption of almost all the silver that was mined and accumulated for 5000 years. Every measure of total known world inventories in the past half-century show declines of greater than 95%. The facts clearly indicate that silver has been in a structural deficit for 60 years. No commodity has a similar profile.
Added to this known elimination of almost all above ground inventories, we are given credible evidence that we may be exhausting underground inventories as well. I went to the mineral surveys of the United States Geological Survey (USGS) and reviewed their latest studies on the major metals. On an absolute and relative basis, there is less silver remaining underground than any other metal. In other words, at current production rates, we will run out of silver before we run out of any other metal.
Not only is total U.S. production down some 30% over the past few years, but what was formerly the largest silver producing state, Nevada, has seen its silver production decline by more than 50% over the past five years, due to ore bodies being played out.
Also in silver we have a unique geological circumstance, known as "epithermal deposition", which holds that most of the silver in the earth’s crust was deposited near the surface. Consequently, there is less silver available the deeper you go. If you are letting your imagination work freely, you should be starting to ask yourself – what kind of price should be assigned to a vital commodity that faces both above and below ground depletion?
In the past 25 years the world has removed 12 billion ounces from the earth (using an average world production of 480 million ounces a year.) At the current world-mining rate (600 million ounces), we will extract another 15 billion ounces over the next 25 years. The U.S. Geological Survey, chief geological statistician for the U.S. Government, projects the earth may contain only 8.5 to 18 billion ounces.
Current world silver demand runs 900 million ounces a year. Assuming no growth in demand (in other words, forget that China and India exist), in 25 years that comes to 22.5 billion ounces. Even allowing for a scrap recovery component of 5 billion ounces over the next 25 years, here is what we face – the exhaustion of all possible silver everywhere. What is your imagination telling at you about the future price?
Dear Sir,
I am quite concerned with a situation that has been going on for rather a long time on the COMEX. The situation is an extreme concentration of silver futures contracts (net short) being held by four or fewer traders. My concern comes from weekly examination of the COT report put out by the CFTC.
I am not attempting to in any way interpret any COT report. I am merely stating what the report itself says.
As an example, the 31 July 2007 COT for silver states that 4 or less traders are net short 265,552,000 troy ounces of silver.
Total Commercial Net Short Contracts: 46935
Open Interest Contracts: 118550
4 or less Net Short Contracts: 53110
8 or less Net Short Contracts: 64728
4 or less Net Short Troy Ounces: 265,552,000
This an enormous amount of silver and dwarfs the amount of concentration found in a COT report for any other commodity. This huge amount is equivalent to over 150 days of silver production for the entire planet. Whether one, two, three or four entities are short over 50,000 silver contracts, what possible commercial purpose could such a position have except to attempt to manipulate the price level of silver far below the price it would have in the absence of such a concentrated short position. This amount exceeds the entire silver inventories of the COMEX and silver ETF combined. I know of no other market where the net concentrated short position, held by four or less traders is greater than 150 days of global production of a commodity.
I'm sure if four or less traders attempted to accumulate over 50,000 contracts net long that the CFTC would have put a stop to it long ago as an obvious attempt to manipulate the price level of silver far above the price it would have in the absence of such a concentrated long position. If the Hunt brothers had tried their shenanigans on the short side rather than on the long side, would regulators have looked the other way? I don't think so. Perhaps it is who the holders are rather than what they are holding, or why. That would indicate that regulatory officials regard certain entities as above the law. I sincerely hope that is not the case. That is the sort of thinking that led to President Nixon having to resign in disgrace.
As a citizen, taxpayer and voter, I am asking for a reply from you specifically addressing the following questions:
1.Do you think it is proper that the identity or identities of the four or less traders should be withheld from public scrutiny when a prima facie case of market manipulation could be made based on the COT reports issued by the CFTC?
2.If you think that the net short position of over 50,000 contracts, equivalent to over 150 days of silver production for the entire planet, by four or less traders is not evidence of manipulation, how large a position would it take to indicate manipulation?
3.Are you aware of any markets where the net concentrated short position, held by four or less traders, is greater than 150 days of global production?
4.What possible commercial purpose could such an extremely concentrated short position have except to attempt to manipulate the price level of silver far below the price it would have in the absence of such a concentrated short position?
5.What do you, in your official position, having been made aware of this extreme concentration of silver futures contracts (net short) being held by four or fewer traders, based on official CFTC reports, going to do about it?
6.If you, in your official position, having been made aware of this extraordinary situation, feel it is unnecessary to take any sort of corrective action, are you willing to accept the publicity and consequences that may result if, in the future, a case for attempted manipulation is proven in a court of law?
I await your reply and thank you for your time and consideration.
Sincerely,
DCO
Oklahoma
BLAME GAME
By James R. Cook
Quite a few years ago the late silver guru, Jerome Smith, came to visit my company. We had a nice few days talking about economics, the government and silver. Jerome was the ultimate government hater. He claimed that whatever bad happened in the world, if you looked far enough, you would see the government caused it. I was pretty skeptical about that generalization. However, from time to time my mind would return to that statement and leave me wondering.
We’ve had some tragedies in Minnesota lately. The most recent was a flood in the southeastern part of the state. Numerous trout streams, valleys and small communities make up the area. A heavy rainstorm turned the creeks and streams into raging torrents that tore away homes and coated the towns in mud. Lives were lost. One young man gave up his life to save his wife. "Take care of the children," he instructed as he was swept away.
On top of the hills surrounding the streams are farms. To the west the valleys peter out, replaced by tens of thousands of acres of farmland. Virtually all this land is tiled and drains into ditches or into the headwaters of the trout streams. No fields, low areas or ponds are left to absorb and hold water. It drains off quickly. Most assuredly this runoff accounts for the severe flooding, building loss and deaths. The blanket of mud the villagers complain about is really topsoil from the farmland.
Where does the government come in? They paid for the farmers to install tile and dig all the drainage ditches. They subsidized the farmers to "clean up" their land. No thought was given to those poor souls downstream where the excessive runoff wreaks havoc.
You’ve heard about the bridge tragedy in Minneapolis. Thirteen people died while more than a hundred were miraculously spared. The politicians and newspaper columnists are blaming government for ignoring clear warnings of a failing bridge span.
Jerome Smith was wrong when it comes to natural disasters. You can’t blame the government for a hurricane such as the one that hit New Orleans. On the other hand, you can blame the government for building and monitoring dikes that were clearly inadequate. The aftermath of the storm revealed a high level of government incompetence. Unfortunately, the horse was out of the barn by the time the government rode up.
Government has no bottom line. Businesses cut costs and try to spend less while government aims to expand its budget and spend more. Government relies more on degrees and credentials than merit. They also are huge affirmative action employers, a policy which puts race and gender ahead of merit. Government employees are bound by vast numbers of rules and regulations. Creativity and innovation suffer. Since you can make more money in the private sector, entrepreneurs and self starters that get things done are missing from government.
Sad to say, the government is in charge of our money. They have a monopoly. Years ago gold evolved as money. Paper itself could never evolve into money. It had to be linked to gold. Then government cut the link. They did that because gold money could not be created out of thin air, printed in bales or expanded through credit. That was the chief excellence of gold. The government and the politicians could not spend, subsidize, socialize and squander as much with gold money. They got rid of it. Now gold as money is a quaint, historical memory. Money has taken on a whole different meaning.
We do not know currently whether we are in the eye of the liquidity storm or whether it has passed. We do know that trillions of dollars are on shaky ground and trillions would be required to bail out the losers and the plungers. Jim Sinclair warns, "This is the first episode of a meltdown in financial instruments that represent between $20 to $30 trillion dollars." As predicted by the Austrian School of Economics, we are careening from one crisis to another. The monetary authorities have endangered our money to the extent the government probably has to support our stock and bond markets, and perhaps, even real estate.
Do you totally trust the government’s management of our money, economy and markets? You should be skeptical when you see how they inflate like mad to keep every crisis from worsening. It’s always the same cure, water down the dollar. That is all they know. An abundance of anything reduces its value. Currency debasement can get out of hand. The low inflation that everyone seems to love can turn into something much worse. Ultimately there is no good outcome. Hope for the best, but make some preparation for the worst.
SILVER REVIEW
By Theodore Butler
Silver is a material known, mined, used, and valued since the dawn of civilization. It will be used and valued until civilization ends. For the past 150 years or so, tremendously varied and new uses were discovered for this age-old material, which contributed to the progress and modernization of our society. This came about because silver is the best conductor of electricity and heat, the best reflector of light, is integral in the photographic process and has important health benefits. Because of all these new, growing and unanticipated uses of this material, demand has greatly exceeded production for more than 60 years. This has necessitated the draw down and consumption of almost all the silver that was mined and accumulated for 5000 years. Every measure of total known world inventories in the past half-century show declines of greater than 95%. The facts clearly indicate that silver has been in a structural deficit for 60 years. No commodity has a similar profile.
Added to this known elimination of almost all above ground inventories, we are given credible evidence that we may be exhausting underground inventories as well. I went to the mineral surveys of the United States Geological Survey (USGS) and reviewed their latest studies on the major metals. On an absolute and relative basis, there is less silver remaining underground than any other metal. In other words, at current production rates, we will run out of silver before we run out of any other metal.
Not only is total U.S. production down some 30% over the past few years, but what was formerly the largest silver producing state, Nevada, has seen its silver production decline by more than 50% over the past five years, due to ore bodies being played out.
Also in silver we have a unique geological circumstance, known as "epithermal deposition", which holds that most of the silver in the earth’s crust was deposited near the surface. Consequently, there is less silver available the deeper you go. If you are letting your imagination work freely, you should be starting to ask yourself – what kind of price should be assigned to a vital commodity that faces both above and below ground depletion?
In the past 25 years the world has removed 12 billion ounces from the earth (using an average world production of 480 million ounces a year.) At the current world-mining rate (600 million ounces), we will extract another 15 billion ounces over the next 25 years. The U.S. Geological Survey, chief geological statistician for the U.S. Government, projects the earth may contain only 8.5 to 18 billion ounces.
Current world silver demand runs 900 million ounces a year. Assuming no growth in demand (in other words, forget that China and India exist), in 25 years that comes to 22.5 billion ounces. Even allowing for a scrap recovery component of 5 billion ounces over the next 25 years, here is what we face – the exhaustion of all possible silver everywhere. What is your imagination telling at you about the future price?
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