A propos of the recent 40 cent drop in the silver price, the following letter from Ted Butler
to the CFTC is illuminating. I suggest it be read it carefully.
Ted Butler’s recent response to the CFTC follows.
August 13, 2002
The Honorable James E. Newsome
Commodity Futures Trading Commission VIA FAX and E-MAIL
Three Lafayette Centre
1155 21st Street, NW
Washington DC 20581
Dear Chairman Newsome:
Thank you for the response, dated July 26, 2002, from your new Director of Market
Oversight, Mr. Michael Gorham, to my letters to you alleging manipulation in the
silver futures market on the Commodity Exchange, Inc. (COMEX). Mr. Gorham
discussed, in great detail, the workings of the Commission, with reference to
speculative position limits and the hedger exemption to those limits, the very issues
that I had written to you about.
Unfortunately, Mr. Gorham completely evaded my specific allegations, namely, that
there are no legitimate speculative silver position limits currently in place on the
COMEX and that the big concentrated shorts are speculators masquerading as
dealer/hedgers. These are black or white issues. Either there are legitimate speculative
position limits in place in COMEX silver, or there aren't. Either the concentrated
shorts are legitimate hedgers who hold real silver or no more than 12 month
production hedging agreements, or they aren't. The Commission has full and
continuous access to this information, and Mr. Gorham only needed a few sentences,
not five (5) pages, to answer. By not answering directly, a reasonable person would
conclude that there are no legitimate speculative position limits in effect, and that the
dealers are pure speculators, not hedgers.
Confirming my allegation of manipulation is your most recent Commitments of
Traders Report (COT) released August 9, 2002, for positions held as of August 6,
2002. The dealer crooks on the COMEX have succeeded in engineering a technical
fund sell-off involving, in total, over 30,000 contracts from the highs. This is the
equivalent of over 150 million ounces of silver. This is exactly what I warned you
about repeatedly. The concentrated short-selling crooks have finally succeeded in
covering big chunks of their manipulative short position on this contrived sell-off in
silver. What clearer proof does the Commission need of manipulation? Real hedgers
don't sell short massive quantities of material they don't own or produce, for a 40 cent
scalp trade. It should be clear to the Commission that had the 4 or less traders not sold
naked short more than 260 million ounces up to the highs, the price of silver would
have been materially higher. This could not be more obvious.
There were absolutely no developments in the real world of silver supply and demand
to account for this price decline - just hundreds of millions of paper silver ounces
changing hands between speculators (funds and dealers). This is against the number
one premise of commodity law, namely, that speculators shouldn't influence prices. It
has become so perverse in COMEX silver, that the big speculators are the only
influence on price, real fundamentals no longer matter. Your own COT confirms that.
Real producers and bona fide investors are held hostage to the actions of the big
COMEX speculators. How the Commission sanctions this continued violation of basic
commodity law is sickening.
It is not just basic law that is being broken, the very integrity of the market is
threatened. By allowing the dealer crooks to short any quantity necessary to cap the
price, the Commission is creating a danger for all legitimate market participants. The
artificial low price they have created will put our domestic primary silver mining
industry out of business, precisely at the same time US import reliance on silver has
never been higher and the US Government is out of inventory and a buyer for the
first time in decades. These are certifiable facts. For the Commission to proclaim "no
problem" when comparing these facts against a naked short position by 4 or less
traders of over 260 million ounces, is preposterous and absurd. And I don't think the
Commission is preposterous and absurd, at all.
In fact, by virtue of the lengthy and detailed response to my letters, I think that the
Commission grasps the magnitude of this silver manipulation and has taken
appropriate measures to deal with it. If I am correct, this will be apparent on the next
silver price rally. If the 4 or less concentrated short traders don't rebuild their massive
uneconomic position, the Commission will have done its job. If the 4 or less crooks sell
short as before, then the market will still continue to be in a manipulative state.
The real irony is that while it is obvious that the Commission must force the
concentrated dealer shorts to cease and desist from their manipulative practices, you
are doing them a favor. Just like you would have done Enron (and the rest of the
world) a favor if the Commission had preemptively restricted their trading. When the
forces of supply and demand cause the price of silver to surge and the shorts suffer
billions of dollars in losses, the Commission will then face questions from Congress
about how those losses came about. The Commission can do itself a big favor by
forcing the COMEX to institute legitimate speculative position limits in silver
immediately and stop letting the dealer/crooks pretend to be hedgers.
Respectfully,
Ted Butler |
