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Treasury Secretary Snow reported ready to resign

Section: Daily Dispatches

Tuesday, May 23, 2006

Jim Cook: We're starting this interview with silver off sharply from
its $15 high. How long can this go on?

Ted Butler: Generally, the sharper any move, the quicker it exhausts
itself. So I would say this selloff won't last long.

Cook: How low could it go?

Butler: I'd be surprised if we went below $12.

Cook: Why is that?

Butler: There has been massive liquidation of speculative longs and
dealer short-covering.

Cook: Are you saying the dealers got out from under that big short
position they had?

Butler: Yes. At least as much as could be covered.

Cook: How did they do that?

Butler: They collusively pulled their bids on the COMEX, forcing the
longs to liquidate into a vacuum.

Cook: I thought you said the price would explode when the shorts
tried to cover.

Butler: If they tried to cover on the way up. This time they covered
the way they've always covered -- by rigging prices down. But
remember that, for the first time, the dealers covered at a very big

Cook: According to your theory, a price drop reduces the risk. Is
this still true?

Butler: Yes. People are ready to jump out the window at precisely
the time when most of the risk has been taken out of the market.

Cook: What about the poor price action?

Butler: That's a major criterion for a bottom. But you must keep
things in perspective. If I guaranteed you less than a year ago that
silver would more than double, you would have kissed me. Instead,
everyone is focused on the decline from $15. That's just human

Cook: Are we going to do this again -- go up and then get slammed

Butler: I think this next time up the shorts are going to step aside
and refrain from short-selling the next rally. That will cause the

Cook: Why wouldn't they sell again?

Butler: The shorts have gotten killed in other metal markets, like
copper, zinc, and gold. Shorting has proven to be hazardous to their
financial health.

Cook: Did they come out OK on silver?

Butler: Not really. While the shorts have skillfully covered
significant quantities of their positions, they lost hundreds of
millions of dollars on these buybacks. This is the very first time
they have taken such a beating and those losses are fresh in their
minds. I don't think they will put themselves back into danger again
by reshorting.

Cook: Any other evidence to substantiate that opinion?

Butler: Yes. I think the silver that has gone into the new ETF was
formerly inventory against which silver futures were shorted and
traded against on the COMEX for years and years. There are now 73
million ounces in the ETF, or the equivalent of 15,000 contracts.
I'm convinced that this represents 15,000 contracts that won't be
shorted again by the silver wolf pack, adding to my sense of no big
shorting on the next rally.

Cook: Could that have been Buffett's silver?

Butler: Sure, indirectly at least. But it wasn't Buffett selling at
$13 or $14, according to his own statements. I hope it is Buffett's
silver, as that would indicate how little silver remains above

Cook: What's the bottom line if the big dealers don't sell short

Butler: We go boom on the upside. That's why this is the time to
load the boat.

Cook: What do you think about the stories claiming tremendous
amounts of silver in the form of bags of junk coins about to flood
the market?

Butler: I did read an article about that and received a number of e-
mails, and my sense is that it's not something to worry about, but
if it develops into a market factor, we'll deal with it and analyze
it. But you have more than 30 years experience in this very issue.
What's your take?

Cook: It's not currently a factor. However, that aside, you appear
to have miscalculated on the amount of silver available. Would you
agree that all this ETF silver coming out caught you by surprise?

Butler: Yes, it did catch me by surprise. But I've always used the
amount of one billion ounces in total world bullion equivalent
inventory, so this doesn't invalidate that number. And please
remember, the silver in the ETF is taken off the market, so in a
sense, the more they put in, the more bullish it becomes. This is
silver that's no longer available for industrial consumption.

Cook: What's your current take on the silver ETF?

Butler: It has gotten out of the gate faster than almost anyone has
expected, in the amount of silver they have purchased. It is the
perfect institutional investment vehicle, and because there is so
much institutional money sloshing around and so little silver, the
ETF is going to have a profound impact on the price of silver.

Cook: How profound an impact?

Butler: A few billion dollars is chump change in institutional
investment terms. That amount can flow into any worthwhile
investment opportunity in a heartbeat. Silver is the best such
opportunity, in my opinion. And suddenly, for the first time in
history, institutional investors have been given the ability to buy

Cook: So what will happen because of the ETF?

Butler: The institutions will continue to invest in the silver ETF,
causing silver to be bought and taken off the market. The sponsors
of the ETF are either going to run out of silver at current prices
or they are going to sell out the entire 130 million ounces
relatively quickly. If they run out of silver at current prices, the
price must go up to bring out the required silver. If they sell out
the entire 130 million ounces, that will prove there is great demand
for silver and the next step must include plans for another silver
ETF. We have multiple gold ETFs, so there may more silver ETFs.

Cook: Then what?

Butler: They either bring out another silver ETF, which I think
would also sell out, or they admit that there isn't enough silver
for another ETF and the price of silver explodes as people realize
the real situation.

Cook: Silver is a lot higher than it was when we started
recommending it. Are you just as bullish today?

Butler: Yes, I'm still advocating that people buy silver or buy more
silver. People who own only gold and no silver or more gold than
silver should rebalance their holdings.

Cook: What's the case for that?

Butler: Look at the amount of silver being bought in the silver ETF
and compare it to lack of gold being bought in the ETFs for the past
couple of months -- it tells you there is more demand for silver.
That should continue.

Cook: That's the reason?

Butler: There's a number of reasons. Gold is primarily a monetary
commodity, with little industrial usage. Silver is primarily an
industrial commodity, with monetary acceptance by many.

Cook: The gold people say that the monetary aspect makes gold better.

Butler: I say no -- it is the industrial nature of silver that makes
silver the better choice.

Cook: Isn't it a matter of preference?

Butler: What have been the best-performing metals over the past few
years? Industrial metals copper, zinc, and aluminum. There can be
a shortage because they are consumed. Copper, at the recent peak,
was up more than 6 times its low price of a few years ago. Silver is
an industrial metal with a historical monetary kicker. No other
metal has that.

Cook: Any other reasons?

Butler: There is more than 200 times more gold than silver in the
world in terms of the dollar value of each. One half of 1 percent of
the dollar value of gold is greater than the entire dollar value of

Cook So what's your forecast on this strategy?

Butler: Silver should continue to match or outpace gold, as it has
for the past few years. But if things play out as I expect, silver
will greatly outpace gold over the next few years. If I'm correct,
the results could be spectacular. And the kicker is that the gold
investor who follows my advice should end up with more gold in the

Cook: How's that?

Butler: Those who switch some of their gold to silver now will be
able someday to sell the silver and use the proceeds to buy more
gold than they originally sold.

Cook: It sounds good. But we're not going to beat the drum too hard
for switching. We were a gold company for a long time and we like
gold. Let's move on.

Butler: Don't be a wimp.

Cook: What do you mean?

Butler: Every time I bring it up, you say, "Let's move on." The
whole gold world is afraid to suggest that something may perform
better than gold. It takes on a religious, cult-like quality. I'm
not anti-gold; it's just that I think silver will beat the pants off
gold performance-wise going forward and I'm not afraid to say it.

Cook: That sounds a bit extreme.

Butler: What's extreme is that I have never seen anyone else, except
for my friend Izzy, dare to suggest switching gold to silver. People
are not afraid to plagiarize just about everything that I write, but
no one else, to my knowledge, has had the courage say, "Switch your
gold to silver because you'll make a boatload more money."

Cook: You can't be sure of that. Our clients have bought a lot of
gold over the years and it's been going up.

Butler: That's great. Yes, gold has done well and I hope it
continues to do well. I'm not rooting for gold to go down and I'm
not saying it will. I'm saying silver will do much better. If I was
an automobile stock analyst and I thought Ford would do better than
GM, I'd find it necessary to tell people to switch from GM to Ford.
I'm a commodities analyst who feels that silver will do much better
than gold. I have to tell people to switch from gold to silver.

Cook: But the fundamentals for gold look great. The dollar, interest
rates, inflation, oil, and the economy.

Butler: Every one of the fundamentals you can list for gold also
applies to silver. It's the other factors that tell the tale.

Cook: Those are?

Butler: Silver is consumed, not hoarded. Silver is an industrial
necessity, like oil, copper, and zinc, while gold is a luxury item.
World governments, the arch-enemies of higher gold prices, still
hold massive quantities they can sell to hold down the price. They
own just about nothing in silver. There's a lot more gold around
than silver, especially in dollar terms.

Cook: You have a lot of chutzpah, giving that gold-for-silver

Butler: I know something that gives me great confidence. I know that
only small gold investors can take my advice. Big institutional gold
investors can't.

Cook: Why not?

Butler: There's not enough silver. The total value of the above
ground gold in the world is around $3 trillion. One percent of that
is $30 billion. Even if you say there is a world silver inventory of
1 billion ounces, at $15 per ounce that is only $15 billion. One
percent of the gold is worth twice as much as all the silver in the
world. I think this is an absurd ratio that must adjust in time. The
most likely adjustment will come by an upward revaluation of the
silver price.

Cook: Sounds bullish.

Butler: There's 200 more times gold than silver in terms of dollar
value and the great need and absolute requirement for silver in a
modern civilization represent the greatest investment opportunity of
all time.

Cook: This is what you said at $5 an ounce. Can it still be that

Butler: Yes, and in some ways it's even better.

Cook: What ways?

Butler: Well, for one thing, the world has learned that most metals
and minerals were too cheap three to five years ago. Demand has
overtaken production in many commodities and production shows no
sign of increasing significantly, for a variety of reasons. Silver
is no exception. I think it's better that silver has tripled in
price and still doesn't look out of line with other commodities.
It's still in the pack. It has had a stealth move up. It has yet to
demonstrate its unique pricing explosiveness. It will.

Cook: What else?

Butler: This new silver ETF opening the door, for the first time, to
institutional investment is a very big deal and makes things much
better for silver. This ETF will greatly accelerate the time for
inventory depletion. Throw in the dramatically improved COTs, which
are the best they've been in nine months or so, and you have all the
ingredients for a significant move.

Cook: Care to put a number on it?

Butler: I'll be surprised if we don't add a pretty quick $5+, but
longer term I still think the price rise will be astounding.

Cook: No question about it -- you've been right about the recent
price movement and your explanations of what's going on behind the
scenes have generally proven out. But these big dealers you claim
are manipulating the market aren't going away. They are going to be
trying to make as much as they can going against the small investor.
Can the small investor come out?

Butler: Sure, he can. In fact, the small investor, the buy-and-hold
guy, has done better than the dealers in the runup over the past
nine or 10 months. The dealers have succeeded in covering a large
chunk of their shorts but it cost them an arm and a leg. It is
because the dealers took such a beating on the shorts they just
covered that I don't think they want to go short any time soon. That
could really set the price free.

Cook: Any final words?

Butler: This is the time and these are the circumstances to load the


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