Jim Sinclair: Nothing to worry about

Section:

By Ted Butler
InvestmentRarities.com
Tuesday, March 22, 2005

The latest commitment of traders report showed a very sharp increase
in the net dealer short position in gold, of more than 38,000
futures contracts. That brought the total dealer net short position
to more than 147,000 contracts, an increase of almost 110,000
contracts from the lows some five weeks ago. This increase in the
commercial gold net short position ranks among the largest in
history. Silver's dealer net short position was basically
unchanged for the week, still up 20,000 contracts from the lows.

The rise in the gold commercial short position is reminiscent of the
100,000-contract rise exactly a year ago. At that time I speculated
that the rise in the gold net short position was intended to fuel a
gold decline for the purpose of precipitating and augmenting a
decline in the silver price, which was above $8 then. That is
exactly what transpired.

I'm speculating again, and I think the same thing is happening
now. The dealers are using gold to smack silver again. What's
different is that the price and net short position in silver is
nowhere near as extreme as it was a year ago. I interpret that to
mean the silver cash market is much tighter now and the dealers
didn't want as big a silver net short exposure as they had a year
ago.

It should come as no surprise to anyone paying attention that the
root of the sharp price decline in gold and silver on Monday was as
a result of the bloated dealer net short gold position. The dealers
collusively pulled their bids as the tech funds came into sell. The
gold open interest declined almost 20,000 contracts for Monday's
trading, confirming tech fund long and dealer short liquidation. It
is almost amusing to hear alternative explanations for Monday's
decline.

As I wrote last week, there are any number of legitimate reasons why
silver may explode in price, but only one reason for why it would
fall -- because the dealers so desired to trick the tech funds. That
has come to fruition. Now we await the completion of the tech fund
liquidation and the next low-risk buy point.

I can't help but think of the silver miners and the phrase,
"There are none so blind as those who refuse to see." I don't know
how much clearer the tech fund/dealer manipulation of the gold and
silver price could be. There were no real world consumption or
production developments impacting the silver price on Monday. It was
all paper COMEX trading.

Yet the miners pretend not to notice as the price of their product
is toyed with. They make statements about how strong silver demand
is and how low their cash costs have become yet they are still not
able to earn a real operating profit even though silver is more than
50 percent higher than its lows of recent years. They even go so far
as denying that a manipulation exists, in spite of the clear wishes
of thousands of their shareholders. That's crazy.

When this tech fund liquidation and artificial selloff runs its
course and the price of silver rallies once again, the concern over
the lack of action by the miners in the silver manipulation will
recede. But it shouldn't. I can't imagine a situation in any
other commodity with such clear evidence of price manipulation where
all the producers would stand there and take it.

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Eagle Ranch discussion site:

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Ted Butler silver commentary archive:

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