Pedal to the Metals

Grant Williams, who authors the widely-acclaimed newsletter, Things That Make You Go Hmmm…, free subscription here, previews 2012 through the prism of politics, printing money and precious metals, specifically how the first two will impact the third.  He concludes that “the only real way out for the western governments now, is to print money – that’s exactly what I expect them to do and that will be extremely bullish for gold and silver prices.”   Williams also speaks with Dr. Jeffrey Lewis about “Keeping your emotions away from your silver,” which includes a discussion about allegations of silver market manipulation, and the importance of deciding “whether you’re a trader or whether you’re an investor.”

Following last week’s Financial Sense‘ interview with CFTC Commissioner Bart Chilton, Ted Butler responded in a now-public note to his subscribers, by writing that “Chilton pointed out that it is difficult to prove manipulation in a court of law. He indicated that there are three elements necessary to prove manipulation – the intent to manipulate, the ability to manipulate and the success in the manipulation. I accept his legal definition. Where I respectfully disagree with him is in the degree of difficulty in establishing all three elements in the silver manipulation.”

Butler goes on to argue that “it appears so easy for the Commission to prove a silver manipulation on the basis of the three elements outlined by Commissioner Chilton, my guess is that there is something else holding the agency back from ending this scam. They just don’t want to end it. Perhaps there is a political motive or the knowledge that JPMorgan and the CME may be too big to sue. It’s hard to see how the three elements can’t be proved by the public data.” (Photo:  CFTC Chairman Gary Gensler)

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In a commentary to his subscribers that is now publicly available, Ted Butler analyzes the short position in SLV, the largest silver ETF, and finds that from the start of this year, it “had grown dramatically, from around 13 million shares, to a peak of 37 million shares in the spring. Not only is the percentage of shorted shares of total outstanding shares higher in SLV than in any other hard-metal ETF, it is higher for a very unique reason – there is not enough physical silver available to allow for the normal issuance of shares as dictated by the prospectus. Aside from the harm short sellers are having on SLV shareholders, these short sellers are also manipulating the price of silver. If they had to go out and buy 25 or 37 million ounces of silver to issue shares as dictated by the prospectus, the price of silver would have soared. Instead, the SLV short sellers are helping to manipulate the price of the metal itself by defeating the intent of how shares should be issued.

This is not the first time I have raised this issue. Back in the summer of 2008, when silver was near the $20 mark, I wrote how the short position in SLV had grown to 25 to 50 million equivalent silver ounces, which was unprecedented at that time. This was back when Barclays still owned SLV and naked unreported short selling was prevalent. This naked SLV short selling played a big role in the collapse of silver from $20 to under $9 back then, just like the SLV short selling this year has contributed mightily to the collapse in silver from $49 to under $30. Certainly, the percentage decline in prices is strikingly similar between 2008 and this year. It is no coincidence that the price collapsed in 2008 and 2011 when the short selling in SLV was at an extreme.”

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As “Gold and silver calm down after selloff,” the collapse of negative gold lease rates is seen as one sign that the metals sell off may be ending.  And Ted Butler, in a note to subscribers, writes of seeing “scant signals from the real world of supply and demand to account for the decline in gold and silver prices. At the core, this is strictly another Comex-commercial rig job…. We have only gone down in price so that the commercials could buy. It’s not possible that the commercials can always be big buyers on such declines for any other plausible explanation. That the CFTC sits by, even though it has been armed with new anti-manipulative regulations is as shameful as it gets.”

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In a wide-ranging interview, Ted Butler tells Investment Rarities’ President Jim Cook why $200 silver is still possible, how “we may be very close” to a silver shortage, and the conditions that will lead to silver outpacing gold.  He also thinks the COMEX will be undermined by “The rush towards physical” silver, that without JPMorgan’s meddling the price of silver would be “Double, at least,” and that there’s reason to be optimistic about the new position limits on silver. Asked if it will impact the price, he says, “Yes, and I’m sure it already has, both up and down as big players react and influence the market.  The main thing is that it will be good in the long term as it promises to end the silver manipulation.”

Butler recently likened silver manipulation to financial terrorism.  In a report to newsletter subscribers he spelled out the sequence of events that leads to “sudden and sharp silver sell-offs,” and concluded that “This is a crooked, rotten racket that has been going on for decades in silver. The only difference is that it is not al Qaeda or some militant terrorist group at work, but a consortium of leading banks and firms financially terrorizing that segment of the public that has chosen to invest in silver. Instead of being organized by bin Laden, the silver terrorists are organized and protected by the CME Group.”

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“Huge gold buying means higher gold prices are coming.”  That’s the message that David White has for his 50,000-plus Seeking Alpha followers.  In addition to citing the increase in central bank buying, he displays a number of charts to illustrate that “U.S. gold demand is much smaller than that of China, India, and the EU. If people tell you not to buy gold because inflation in the U.S. is not that bad, they are just misguided egotists, who think the world revolves around the U.S. only.”

Smith refers to Monday’s Financial Times article on China’s September import surge, and now Bloomberg reports that “Investors in India are withdrawing from government bonds and national-savings schemes to pour record amounts into gold.”

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The CFTC is out to remind the public that it’s still on the silver manipulation case, reports Reuters, a probe that began in September 2008.  The article cites a one-paragraph statement issued by the agency, and notes that CFTC Commissioner Bart Chilton gave an interview to King World News.  Chilton recycles the charges he first made one year ago, almost word-for-word:  “based on what I have been told by members of the public and reviewed in publicly available documents, I believe that there’s been violations of the law, The Commodity Exchange Act. They’ve taken place in the silver market and I think any such violation, of course, should be prosecuted to the full extent of the law.  I believe there has been repeated attempts to influence prices in the silver market.  And there’s been fraudulent efforts to persuade and deviously control the price.”

Fresher news is Chilton’s willingness to act on constituents’ advice:  “when people email me and say, ‘You watch the market (silver) between 9:15 and 9:45 tomorrow and it’s going to tank or it’s going to do this or it’s going to do that.’  I hold on to it and I watch the market and what they say happens, and I’m not saying this always happens, but it happens even 50% of the time, 60% of the time, there’s no way that doesn’t raise my antenna, like major, electric antenna goes up.”

Silver analyst David Morgan “wonders if the fact the investigation has drawn out for so long could be a hint that officials have found something they consider bothersome,” reports Kitco:  “Now, they basically come out and say little, other than they are doing thorough research and it continues. That alone to me says there must be something that their investigation has uncovered that leaves questions in their minds.” But another analyst countered that “I wouldn’t interpret this as a sign of guilt or innocence.”

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Following a report that HSBC was dropped from a silver price-fixing lawsuit, leaving JPMorganChase as the only bank defendant in the case, an updated complaint includes allegations that “MorganChase regularly engaged in uneconomic trading activity in silver whose only purpose was price manipulation,” and, that it “used ‘fake’ and ‘spoof’ trades to manipulate prices downward, particularly in advance of contract expiration dates, when MorganChase held put options, which became more valuable as the price of silver was driven down.”

Ted Butler cited JPMorgan in his newsletter this week, pointing out that “The most salient feature to the silver paper trading mechanism is that the short side of the derivatives equation is extremely concentrated, while the long side exhibits very little indication of concentration. In other words, the silver longs are diverse and unrelated to one another. This is the hallmark of a free market. The short position is dominated by large financial institutions, led by JPMorgan, that are few in number but hold very large positions; the very definition of concentration. This is as far from a free market as it gets. Further, the shorts appear to act collusively, generally buying and selling in unison.” (scroll down at link for longer excerpt)

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“I can get you a gallon of gasoline for a dime,” teased Rep. Ron Paul during Wednesday’s GOP presidential debate, before explaining that “You can buy a gallon of gasoline today for a silver dime.  A silver dime is worth $3.50.  It’s all about inflation and too many regulations.” Actually the value is just over $3.00, and that’s after silver gained more than 2% on Thursday, with prices for December delivery settling at $42.53.

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“I believe we have also lost true liquidity in silver, as we have in gold,” writes Ted Butler.  “This can be seen in the volatility of the silver price, same as in gold. Back in April, the commercials panicked in silver and bought back shorts, causing prices to explode into the end of that month. Then, a giant manipulative takedown occurred, starting May 1.  Recently, the commercial shorts in silver haven’t panicked as they have in gold. In fact, JPMorgan, who I believe to be the largest COMEX silver short, added to short positions in the last COT, as I reported on Saturday. Considering what has occurred in gold, I believe it is only a matter of time before the big commercial shorts also panic in silver. But the panic in silver will be much more profound than it has been in gold….It’s impossible to say when such a process will start in silver, but we surely are closer to that than ever before. This is more a case of inevitability than it is of timing. It will come when it is least expected, but it will come.”

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A Silver Investing News article on “2011 Silver Trends,” notes that despite May’s price dip, “some analysts say the silver market is actually better off than before, because it represents a higher, more comfortable, new trading range, from which it has the potential to make significant gains in the near future.”  And reviewing the prognostications of silver analyst Ted Butler, one of which is “silver dramatically outperforming gold in the future,” Jim Cook points out that “Those who listened to his advice when we first started publishing him in 2000 gained eight to ten times on their money.  Nevertheless, the most bullish aspects of his forecast are still pending.  In other words, the big move still lies ahead.” Cook also recommends that “One of the best ways to capitalize on silver’s profit potential is with U.S. silver coins struck before 1965.”

In “The Public Be Damned,” Ted Butler declares that “The whole premise of the economic justification behind commodity futures trading has been bastardized.”  He fingers “unbridled speculation and computer-type HFT trading gone wild,” as well as the CME Group for facilitating it and the CFTC for allowing it to continue.  “US law has sanctioned the trading of commodity futures for the express purpose of allowing legitimate producers and consumers to hedge or transfer their price risks to speculators,” explains Butler.  “But the wild price swings we are witnessing are not related to legitimate hedging. The volatility is as a result of speculators battling speculators, with real hedgers largely on the sideline.”  More on how “HFT is sucking the life blood out of the markets: liquidity.”

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