Fed in no hurry to raise interest rates amid so little job creation


3p ET Tuesday, March 16, 2004

Dear Friend of GATA and Gold:

Insight magazine, a division of The Washington
Times, today published a wonderful examination
of GATA consultant Ted Butler's exhaustive
exposure of the manipulation of the silver
market. The examination comes in an article by
the magazine's staff writer, Kelly Patricia
O'Meara, and it shows how Butler's agitation,
lately aided by the GATA army, is having an
impact on market regulators.

The article is appended. Please distribute it
to friends, contacts in financial businesses,
and other news organizations.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Is silver scandal on the horizon?

By Kelly Patricia O'Meara
Insight Magazine
March 16, 2004


One can only speculate, of course, about the outcome of
the Enron debacle if investors and regulators had been
clued by whistle-blowers into the enormity of the
corporation's accounting shenanigans in the years before
its implosion. Though it's too late for Enron employees
and stockholders, thousands of investors believe a similar
implosion is looming in the silver market with potentially
catastrophic consequences.

Rather than sit back and reap the financial benefits to be
gained by what these investors believe will be a much
higher price for the precious metal, this indignant army
of investors and whistle-blowers has set out to alert
federal regulators with the hope of averting another
Enron-like disaster.

It's fair to say that when the price of any investment sold
as a certainty fails to rise to anticipated levels, accusations
of unfair practices and manipulation are likely to arise.
Some accusations have merit and some do not. In this
instance, there is no mincing of words. Not only do a
growing number of investors believe that the silver market
has been manipulated to hold down the price of silver, they
accuse regulators of the commodities markets of allowing
a handful of traders who are "short" silver (betting the price
will go down) to commit a fraud by selling paper claims for
delivery of silver that the whistle-blowing investors say
does not exist.

For nearly two decades Ted Butler, an independent
commodity analyst and investor in silver, has been a diligent
critic and prolific letter writer to the regulators who oversee
the commodities markets. It is respect for his remarkable
understanding of the silver market that has encouraged
thousands of small investors to barrage regulators and law
enforcement with requests for an investigation of what they
are convinced is a rigged market.

According to Butler: "The problem is that the silver market
has not behaved according to the laws of supply and
demand, which holds that if you have more consumption
of a commodity than you have production -- consuming
more than you produce -- the price has to rise, and has to
rise sharply, to correct that condition. Based on the reports
of all accepted statistical services which analyze silver,
this condition has been present in the silver market for
nearly 15 years, yet the price of silver hasn't risen

As Butler puts it: "This causes a reasonable person to ask
why the price hasn't risen. My answer is that this kind of
action can take place only if the market is for some reason
not free to respond to the iron law of supply and demand.
You cannot have a free market in which consumption is
more than production without the price increasing. That
is the core principle of the marketplace. It is the essential
law on which our capitalist economic system is based, the
law of supply and demand, and it doesn't get any simpler
than that. If the price of silver appears to be immune to
the law of supply and demand, there is something wrong."

The situation in the silver market, Butler continues, "doesn't
exist in any other commodity traded, and the bottom line is
that we've used up 95 percent to 99 percent of a 5,000-year
accumulation of silver and are about to hit the wall. The
fact is, we no longer can depend upon inventory to
supplement the market. The world known silver inventory
now stands at about 150 million ounces, the majority of
which is stored in the [New York Mercantile Exchange]
COMEX warehouses in New York. The world annual
production -- that is, all the silver produced [mined] from
the earth in any given year -- now is around 600 million
ounces per year. Silver supplied from recycling on a regular
basis amounts to another 150 million to 200 million ounces.
But current consumption of silver is around 900 million
ounces, leaving a deficit of 100 million more ounces of
silver being consumed than is produced."

The problem gets worse when you consider that the
Commitments of Traders Report (COT) for Jan. 27 reveals
that commercial traders have increased their net positions
in COMEX silver futures and call options to 470 million
ounces. And, according to the COT, just "eight or less"
traders have sold 330 million ounces of silver -- a total net
"short" position "three times the size of total world known
silver inventories."

Butler puts it simply: "The 'short' traders have sold silver that
they do not have and cannot get unless these 'eight or less'
traders have some way of obtaining for delivery all of the
world's silver production for the next couple of years. That
seems more than a little farfetched. In 2003 the silver deficit
was 87 million ounces, and there have been deficits for the
last 15 years. To meet this obligation, silver has been taken
from inventory, but now the inventory has dwindled to the
point that the sales of silver far exceed even what is in known
world inventory."

What will happen, asks Butler, "if the buyers of this silver
['longs' who expect the price to go up] decide to take delivery
of their silver contracts, which they have every right to do?
What if these buyers of silver say 'Hey, I think I'd like to have
my silver'? The reason the seller 'shorts' haven't had to turn
over the silver is because the buyer 'longs' haven't demanded
delivery. But you know, there's an old saying, 'He who sells
what isn't hisn, buys it back or goes to prison.' So the sellers
can either scrape up the silver from who knows where or buy
it back at extraordinary cost. But at that point the cat is out of
the bag. Based on the official numbers of known silver, it just
isn't possible to deliver the silver that has been sold. This
situation inevitably has to end in default, which is the worst
thing that can happen in a market, unless action is taken now.
And that's why I, and many other silver investors, have been
writing to regulators who oversee these markets, asking them
to investigate."

In a September 2002 communication between Butler and former
New York Mercantile Exchange (NYMEX) executive vice
president Neal Wolkoff, Butler further simplified the matter,
even agreeing to end the dialogue if the NYMEX official will
verify that the "eight or less" traders can prove that they have
the 330 million ounces of silver for which they had sold paper
claims into the market separate from the COMEX warehouse

Citing data from well-known market services, including Gold
Fields Mineral Services and the Silver Institute, Wolkoff
concluded: "I have found no evidence to support a finding, or
even a reasonable belief, that the silver market is being
manipulated." But the NYMEX official did not respond to
Butler's challenge to show that the "eight or less" traders had
the physical silver for which they had sold claims on the

Beyond Butler's steady communications with the commodities
regulators, increased pressure is being applied by investors who
not only believe that Butler is correct but that the numbers
speak for themselves. In fact, silver investors feel so strongly
about what has been transpiring for more than a decade in the
silver market that nearly 3,000 of them have signed a formal
request to Eliot Spitzer, the hard-nosed attorney general of
New York state, urging him to look into the matter and to
"ask the COMEX what safeguards they have in place to
ensure that big short position holders can fulfill their
responsibility to deliver real silver." The investors say that if
any COMEX contracts are broken for "insufficient silver,"
they hope and expect that Spitzer "will prosecute the silver
'short' check writers to the fullest criminal extent of the law."

Spitzer did not return Insight's calls requesting an interview
to discuss these matters, but a source at the Commodities
Futures Trading Commission (CFTC), the congressionally
mandated commodities regulatory body, tells Insight that the
commission is well aware of Butler, growing investor anger,
and the current letter-writing campaign.

"Through the years," says the CFTC source, "we've considered
the allegations and examined the merits of them as we are
doing in this recent case. As of now, we don't think there is
much merit. We take the letters seriously, but we just don't see
that there is a manipulation on the 'short' side."

Asked if the CFTC can confirm that the shorts actually have
the silver they have sold into the market, the source explained,
"Well, obviously we can't say with certainty about every short
having silver on every contract. The hypothetical [that longs
would request their silver] has never happened, so the amount
of deliveries are always a small number relative to the size of
the amount of positions traded."

Has the CFTC gone to the "eight or less" and said, "Hey, you've
sold 330 million ounces of silver. Do you have the silver to
back it up?"

"I'm not going to get into specifically what we've done," the
source says, "but we're comfortable that the shorts are not
manipulating the market, and at some future date, if there is
demand in the market that exceeds the amount of silver that's
available for delivery or in the cash market, then prices will
react as they do in any market."

That is, there will be one enormous spike in the price of silver.

It appears that much of the CFTC's faith that the market is not
being manipulated to keep down the price of silver comes from
the fact that to date those who have wanted delivery of silver
could get it. "I'm not saying that one man's writing [Ted Butler]
isn't credible," the CFTC source claims. "I'm saying that the
same accusation has been made over 15 years that there is a
shortage that requires higher prices, but over that 15 years there
has been enough silver to meet consumption demand for every
single year. So presumably the claim did not have much behind

Chris Bowen, general counsel and chief administrative officer
of NYMEX, assures Insight there is no problem. "We have
received some letters and e-mails on this matter, and we've
received over the course of years, probably from the same
individuals, claims about markets focused on silver. As we do
whenever we receive complaints, we look at them, review
them, and we've found that there has never been an issue. We
always look at the market information and at the arguments
that they make and see if they make any sense."

The following dialogue with the NYMEX counsel about
whether the amount of silver sold into the market is supported
by physical silver seems murky at best.

Insight: "Has anyone at the NYMEX gone to the 'eight or less'
traders and said, 'Hey, let's see the silver'?"

Bowen: "As part of our surveillance procedures, we have
information about the positions of all large traders in the
market. So in that circumstance we have the ability to monitor
for any potential situation. In the past we've never found it to
be an issue."

Insight: "In the past there was a much larger inventory. Are
you looking into whether the 'eight or less' largest commercial
traders have the silver to back up their short position?"

Bowen: "We have information for the positions of all the large
traders in the market."

Insight: "Do you have information about the amount of silver
that they have?"

Bowen: "Correct."

"Correct" that the commercial shorts have the appropriate
amount of silver, or "correct" that the NYMEX has information
about the amount of silver they have or do not have?

It is precisely this kind of ambiguity or evasion that has fueled
the fire among the thousands of individual silver investors calling
for an investigation.

Bill Murphy, chairman of the Gold Anti-Trust Action Committee
(GATA), a nonprofit organization that researches and studies the
gold market, long has held that the gold market has been
manipulated by a few of the large banks and government entities.
Now Murphy has thrown the full weight of his organization
behind the accusations raised by Butler and other silver investors.

"Look," says Murphy, "the GATA army mobilized to support this
effort because of information that we're getting that large investors
are going to the COMEX for silver supply because they can't
locate it elsewhere in the world in any size. And that's why we're
helping Butler expose this fraud. If we're right, they'll be hitting
the wall in silver within the next couple of months because they
don't have the silver to continue these games. Of course, all these
big shorts have to do is buy back the contracts, but they aren't
going to do it. Greed has a full-throttle hold on them. Greed and
arrogance like that of the boys at Enron. You know, they just
kept on with the game."

Murphy drives home his point: "What we're saying to the
regulators is: Don't wait until a disaster happens. Don't sit there
and protect these big shorts because they seem incomparably
rich and powerful. Don't let them keep selling silver contracts
that they can't possibly fill. When you have a few people with
huge positions and the basis of that position is the claim that
they have the silver to deliver, they should be required to prove
that they aren't selling hot air.

"Look, we're investors, and yes we have a vested interest, but
we know what we're talking about and the numbers support
what we're saying. If we're right, and we believe we are, I think
we're going to see some real fireworks beginning in March.
And even if it's just coincidence, since GATA got involved
in asking these questions, silver has risen nearly 70 cents."

Despite murky assurances by the regulators, Butler concurs with
Murphy that big changes in the silver market are coming. "There's
no great conspiracy," he explains, "it's just pure greed. You don't
have to be Albert Einstein to figure out that if you sell something
that doesn't exist, there will be a problem when delivery is
demanded. These shorts have raked in tens if not hundreds of
billions of dollars by keeping the price at depressed levels. This
is a big issue, and when silver goes up, it's going to be a huge
scandal. As soon as the inventory is gone the price will spike.
A sudden, shocking wake-up call is going to be thrust upon us.
It's like we're on the Titanic. We've hit the iceberg and the
regulators are yelling, 'Hey, there's no problem until this
unsinkable ship goes down.'"

Although the numbers appear to support the dire warnings being
made by these small investors, there's no telling what hidden
information might exist to have convinced regulators that life
jackets are not yet necessary. All that is certain, say critics, is
that unlike the Enron debacle, the regulators won't be able to
claim that they weren't warned about icebergs.


Kelly Patricia O'Meara is an investigative reporter for Insight.
Her e-mail address is komeara@insightmag.com.


To subscribe to GATA's dispatches, send an e-mail to:


To unsubscribe, send an e-mail to:




Free sites:

























(Korelin Business Report -- audio)

Subscription site:



Eagle Ranch discussion site:


Ted Butler silver commentary archive:



Centennial Precious Metals
3033 East 1st Ave.
Suite 403
Denver, Colorado 80206
Michael Kosares, Proprietor
US (800) 869-5115
Canada 1-800-294-9462
European Union 00-800-2760-2760
Australia 0011-800-2760-2760

Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
Don Stott, Proprietor

Investment Rarities Inc.
7850 Metro Parkwa
Minneapolis, Minnesota 55425
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889

178 West Service Road
Champlain, N.Y. 12919
Toll Free:1-877-775-4826
Fax: 518-298-3457
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Fax: 514-875-6484

Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
Ed Lee, Proprietor

Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
Contacts: David Schectman,
Andy Schectman, and Bob Sichel

Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877

Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
Dr. Fred I. Goldstein, Senior Broker



If you benefit from GATA's dispatches, please
consider making a financial contribution to
GATA. We welcome contributions as follows.

By check:

Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary/Treasurer
7 Villa Louisa Road
Manchester, CT 06043-7541

By credit card (MasterCard, Visa, and
Discover) over the Internet:


By GoldMoney:

Gold Anti-Trust Action Committee Inc.
Holding number 50-08-58-L

Donors of $750 or more will, upon request,
be sent a print of Alain Despert's colorful
painting symbolizing our cause, titled "GATA."

GATA is a civil rights and educational
organization under the U.S. Internal Revenue
Code and contributions to it are tax-deductible
in the United States.