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How do we know that central banks rig the gold market? They TOLD us
A glint of chicanery in the silver market?
By Mike Blahnik
Minneapolis Star-Tribune
Sunday, May 30, 2004
http://www.startribune.com/stories/535/4799894.html
Is the silver market tarnished?
Hundreds of silver investors passionately believe that
prices have been manipulated downward for years by
a coalition of financial institutions, costing investors
millions of dollars and creating a dangerous supply
shortage that will end only with an astronomical
surge in prices.
Nothing short of manipulation, they say, can explain
the 33 percent plunge that took silver prices from a
15-year high of $8.22 an ounce in April to $5.52 this
month.
Galvanized by an outspoken analyst who writes
commentaries for a Minneapolis precious metals broker,
Investment Rarities Inc., these investors -- who own
coins, bullion, silver certificates, futures contracts,
mining-company stocks, and mutual funds -- have taken
their complaints to market regulators.
The uproar grew so loud that the Commodity Futures
Trading Commission has taken the unusual steps of
addressing the allegations on its Web site and sharing
its own market analysis.
"We believe the allegations of manipulation in silver
futures made by one analyst for so many years are
based on false assumptions and faulty analysis,"
CFTC Market Oversight Director Michael Gorham
said in a nine-page response to more than 500 letters
sent to the CFTC.
Ted Butler, the silver-tongued analyst who caused the
rain of letters, says he didn't expect the CFTC to say it
had found any manipulation, but wishes it had revealed
more about the trading activities of the commercial
banks that frequently take large "short" positions in
silver, betting on a price decline.
Still, he sees a silver lining in the CFTC's market
analysis, which confirms that the use of silver
continues to outpace new production.
"They really gave a lot of information about silver being
in a deficit and acknowledging that world inventories
have been drawn down dramatically," Butler said.
"This is a first. This is like a historical document,
giving you confirmation that the government is saying
kind of the same thing I'm saying."
Silver's supply/demand fundamentals have seemed
to favor higher prices for several years, a fact Warren
Buffett cited for purchasing more than 100 million
ounces of the metal in 1997.
Supply is seemingly limited because after many years
of stagnant prices, there has been little incentive for
mining companies to explore for new ore bodies.
On the demand side, industrial uses of silver have
continued to expand because of the metal's superior
conductivity and other physical properties.
"If we had a much higher price, not only would the
miners be looking for more silver, we'd also have users
looking for substitutes and trying to minimize usage,"
Butler said.
So far, the annual imbalance between demand and
new supply has been covered largely by government
stockpiles worldwide. China is a big seller. The U.S.
government, which once owned more than 5 billion
ounces of silver, sold the last of it a few years ago
and now must buy more than 10 million ounces each
year for coin minting.
Unlike his conspiracy counterparts in the gold market,
Butler doesn't contend that governments or central
banks are willing accomplices in silver market
manipulation.
In the silver market, big commercial banks at times
sell large quantities of futures contracts as hedges
for their customers (often silver miners who stand to
lose money if the price falls) but also as speculative
positions.
These big banks have more financial backing than
the speculative buyers (usually hedge funds and
individual investors), so they can amass huge short
positions. Before the recent selloff, those short
positions grew to be four times as large as the
deliverable quantity of silver stored in New York
Mercantile Exchange warehouses.
According to the manipulation allegations, the large
commercial banks, which also function as market
makers by actively buying and selling to create
market liquidity, have the ability to engineer a slide
in prices by simultaneously dropping their bids.
The selling then cascades as hedge funds and
other previous buyers sell their contracts to lock
in gains or limit losses. At that point, the
commercial shorts cover their positions by taking
the other side of the panicked selling.
"They know how to coordinate their buying and
selling so that it goes against your logical sense of
what should happen," Butler said. "They've never
lost in the Comex silver arena in the 15 years I've
been watching it. There's no way that these guys
are that lucky and are never wrong."
Butler's allegations have brought him a wide following
among individual investors. But his rantings prompted
Pan American Silver Corp. Chairman Ross Beaty to
call him "nuts" and label his commentaries as "drivel,"
and most precious metal mutual fund managers won't
touch the topic with a 10-foot bullion bar. But Butler,
his mettle tested by such criticism and the recent
price drop (although prices have rebounded back
above $6), remains committed to silver despite the
rigging he believes exists.
"When the manipulation ends -- and it has to at some
point -- you know the price has to explode," Butler
said.
Maybe. But investors should approach any market that
falls 33 percent in a matter of weeks with extreme
caution.
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RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
Free sites:
http://www.cbs.marketwatch.com
http://www.capitalupdates.com/
http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kuik.com/KH/KH.html
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)
Subscription site:
http://www.lemetropolecafe.com/
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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Michael Kosares, Proprietor
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11742 Manchester Road
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info@mocoin.com
314-965-9797
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15018 North Tatum Blvd.
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Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
FiGoldstein@swissamerica.com
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