Ted Butler touches on this subject in a recent commentary:
Archives
WEEKLY COMMENTARY
March 19, 2002
THE COMING SILVER EXPLOSION
AN IN-DEPTH INTERVIEW WITH SILVER
ANALYST THEODORE BUTLER
.....I mean that the short position in COMEX silver, in futures and call option contracts, is larger than all known silver bullion inventories in the world. The short position is also greater than all the silver that could be mined in the world in a year. This situation has never existed in any other regulated commodity. This situation has existed continuously in COMEX silver for the entire time I allege that silver has been manipulated, for the past 15+ years. In fact, this is the reason (plus leasing) that silver has been manipulated.
Q. Can you put it into numbers?
A. Well, as of today, March 15, there were roughly 120,000 silver futures and call options contracts open on the COMEX. That's equal to 600 million ounces of silver. World mine production is less than that, and there are no more than 125 million ounces of documented silver bullion inventories in the world.
Q. Compare that to gold.
A. Today, COMEX gold open interest is around 265,000 contracts in futures and calls, or 26.5 million ounces of gold That's less than one-third of world mine production. That's less than one per cent of known bullion inventories of three billion ounces. If gold was the same as silver there would be nine billion ounces short. What a joke. This sick situation does not exist in any other commodity.
Q. Why do you call it sick?
A. Because it should be impossible to have a short position bigger than what exists or could be produced. Think about it. Let me go one step further. This is all the proof that anyone would ever need to know that silver is manipulated. This large short position would be impossible in any other item, commodity or otherwise. And how the COMEX and CFTC can sit by and ignore this aberration is beyond me.
Q. I can accept the comparison to world production, but isn't there more than 125 million ounces of silver in the world?
A. Of course there is more silver than that. But I use verified inventory, because that allows a scientific, objective comparison to other commodities. Apples to apples. Also, the COMEX contract calls for a very specific form of silver bullion. While there is much more silver in the world than 125 million ounces, how much is available and in either good delivery form, or that could be converted to good delivery form? I mean, I hear these stories about billions of ounces in India, for instance. But what form is it in, jewelry? And its ownership is spread among hundreds of millions of people. And even in 1980, when silver hit $50, there was no big Indian silver dumping. It's just silly to think that Indian silver backs the COMEX short sellers.
........Not only is the short position in COMEX silver bigger than any short position has ever been, or could ever be, it doesn't even appear to be the real producers who are doing the selling. For example, just today, Pan American Silver, reported their earnings; or, I should say, their lack of earnings. They reported a loss. Same as Coeur d'Alene, Hecla and every other primary silver miner I'm familiar with. The reason given for the losses, just like the reason for the bankruptcy of Sunshine Mining is the low price of silver. None of these companies can make a profit because the price of silver is too low. Not surprisingly, none of these companies are selling silver short on the COMEX, although they, as producers, would be considered to be the logical sellers. That's because the COMEX and all futures markets exist for the purpose of allowing real producers and consumers to hedge. That is the economic purpose and justification as to why we even have futures markets. To allow hedging.
Q. You say the price of silver is too low for producers to profit and the producers aren't selling or hedging on the COMEX. So if the real producers, the natural hedgers aren't selling short on the COMEX, who is?
A. The speculators. You have to be one or the other. You are either a hedger or a speculator. If the hedgers aren't selling, then for sure, the speculators are. And that makes the short selling on the COMEX that much worse.
Q. Why is that worse?
A. Because then there is no economic justification for the short position on the COMEX at all. Look, I can show that the COMEX silver short position is the biggest short position in history. Now, I can show it is being done by speculators, and not real producers. It is illegal beyond question.
Q. Illegal?
A. Absolutely. The main purpose of commodity law is to prevent manipulation. The economic justification for futures trading is to allow hedging. The speculators on the COMEX have driven the price of silver so low, that the producers not only can't hedge, they can't even show a profit, or stay in business. The main premise of commodity law is that the real producers and consumers of a commodity should set the price of the commodity, not speculators. In Comex silver, the short selling speculators run the show. And that's flat-out illegal. How the miners sit by silently and allow this to happen is beyond me. They act as if everything's just fine.
Q. What about the CFTC and COMEX? Don't they see this problem?
A. Jim, I read your letters to the CFTC and their response, just as you have read mine to them and the COMEX. In addition to taking three months to answer you, did you feel they even addressed the issue fairly?
Q. Well, no.
A. I don't know why the COMEX and CFTC won't address this issue and fix the problem. It is plain as day. And it's disgraceful.
Q. Do you know who the big speculators are?
A. Mostly the dealers, but sometimes the technical hedge funds. Right now, it's the dealers, although the dealers are trying to lure the hedge funds onto the short side.. For the new Commitment of Traders report issued today, the concentrated net short position of the 4 or less traders has increased to over 181 million ounces, a recent record and thoroughly obscene naked short position. If there are 4 traders, and not less, that means they hold an average of over 45 million ounces net short, each. Just to put that number, 181 million ounces, into perspective, that's equal to the entire silver mining output of the most silver-prolific continent in the world - North America. 4 or less speculative traders are short what every silver mine in Mexico, the US, and Canada produce in a year. It's totally crazy. With that kind of short selling, it's a wonder the price isn't two dollars.
Q. But who are these big speculators?
A. We can only guess, because the CFTC keeps that secret, although I am trying to get that changed. The likely candidates are Goldman Sachs, AIG, JP Morgan Chase, Bank of Nova Scotia, HSBC - the usual group of suspects. The ones I have publicly accused of being involved in this unsavory enterprise. Certainly none of them is coming forward to admit to being one of these 4 or less traders. While the CFTC will undoubtedly hide behind the law preserving these traders identity, it is a selective enforcement of the law. The CFTC ignores the laws on manipulation and speculative position limits. We are in a new day and age of transparency in the markets, and there is no reason that any trader holding a net short or long position in any market of 5% or more, should not be publicly identified. Just like the SEC makes anyone with a 5% holding of any stock publicly disclose the position.
Q. So futures trading in silver has changed from producers and users hedging to big speculators trading?
A. Absolutely. Contrary to every concept of futures trading, the speculators have pushed the real producers and consumers aside, as far as price-influence goes. The lunatics are running the asylum.
Q. They control the market?
A. Without a doubt. These dealer/speculators and hedge fund/speculators deal in amounts much larger than the real producers and consumers, who are basically absent from the COMEX. It's like having the front line of the St. Louis Rams against the local high school team. It isn't even close. How could it be? These well-financed dealers are swinging around obscene amounts of paper silver. That's what sets the price.
investmentrarities.com
got to Butler archives And March 18-22 commentary.
******************************************
Looking at the CFTC report 321gold.com the question is where Goldman Sachs, AIG, JP Morgan Chase, Bank of Nova Scotia, HSBC would be classified - as large specs or commercials. Butler seems to imply they would be listed as specs. In that case, with these people all long (specs 49,000 long;3700 short) the market (at least in the short term) doesn't have much more upside. But if they are under the Commercials (77,000 short; 12,500 long) they might be in some trouble should the market continue to rise as Butler suggests, unless, of courses, they are willing to increase their short position. |
