Iran reported repatriating currency reserves via gold shipments


By Ted Butler
Monday, June 5, 2006

Over the past 10 years I have argued that silver has been
manipulated in price. One of my goals for writing publicly about
silver was to terminate this manipulation. While I know that many
people can't understand my obsession with the manipulation, I make
no apologies for my convictions. There is nothing more basic or
important than keeping a market free of manipulation. This is the
cornerstone of our market economy.

Unfortunately, I have not been able to convince the Commodity
Futures Trading Commission (CFTC), that large commercial interests
manipulate the silver market. Long-term readers know how many
different avenues I have taken to expose and terminate the
manipulation. Many of you have participated in a number of the
campaigns. For that, I am grateful.

Even though prices have increased significantly from the low levels
of years past, it is still obvious to me that silver remains a
manipulated market. I have recently discovered what I feel is
compelling new proof of that manipulation. The intent of this essay
is to convince the CFTC and get them to act against the manipulator.
The short position of the four or less traders (possibly just one
trader) has become so lopsided and out of balance that it cries out
to be addressed by the regulators.

The CFTC's most important responsibility is to prevent market
manipulation. In order for the CFTC to satisfy this mandate, they
are given a large taxpayer-funded budget and employ a large staff.
In order to prevent manipulation, the CFTC relies on many different
tools. These include speculative position limits, large trader
reporting requirements, and various market oversight and
surveillance techniques.

For there to be a manipulation of any kind, it must involve only a
few participants, or even a single entity. By definition, great
numbers of participants can't possibly bring about a manipulation.
There must be a concentrated, large position in order to have
manipulation. Because of this, the CFTC monitors the concentrated
positions of the largest traders in every market that it oversees.
It publishes the concentration ratios of the largest 4 and 8 or less
traders in every commodity futures contract, every week, when it
reports these concentration ratios in the long form Commitment of
Traders Report (COT).

This is the source data, which I claim proves that silver is
manipulated. The very data that is maintained and published by the
CFTC to monitor and prevent manipulation is what proves the
manipulation. It also proves that the CFTC doesn't even bother to
analyze the data it monitors and publishes. According to the COT,
for positions as of May 30, 2006, the 4 or less large traders in
COMEX silver have a net short position that is more concentrated
than at any time in history. It is far more lopsided in concentrated
shorts compared to concentrated longs than any other major market.
This short position is not only 3.5 times greater than the
concentrated net position of the 4 or less largest long traders, it
is also more concentrated and larger than any position held by the
Hunt Brothers in the great silver manipulation of 1980.

The actual numbers state that the 4 or less largest traders are net
short the equivalent of 181,584,000 ounces, while the 4 or less
largest traders are net long 52,506,000 ounces, To put this short
amount into perspective, it is more than is produced annually on the
largest silver producing continent, North America (Mexico, US and
Canada). It's larger than the combined total holdings in the COMEX
warehouses and the silver ETF (SLV). The concentrated net short
position is staggering in size.

Does an extremely large and concentrated position automatically mean
a market is manipulated? Not necessarily, even though you can't have
a manipulation without a concentrated position. But once you
establish that a large, concentrated position exists, allegations of
manipulation cannot be summarily dismissed. The situation must be
examined with a higher level of regulatory scrutiny than as if there
were no concentrated position. If there are other clues that suggest
manipulation, then the regulators should be on red alert. I think
those clues exist for anyone who takes an objective look. Start with
the fact that COMEX silver has always had the largest short position
relative to real world production and inventory. Then ask, why did
the price remain comatose for decades while the market was in a
clear documented deficit? In other words, what overrode the law of
supply and demand?

Another big clue is the silver price action itself. Because the
shorts are more concentrated (and the longs less concentrated) in
COMEX silver than in any other market, the price declines are always
more dramatic than the price advances. Contrary to all the talk one
hears about silver being in a bubble and run up in price by
speculators and hedge funds, the undeniable evidence proves that it
is the shorts with the largest concentrated position. It is easy for
the shorts to collude and pull bids because there are so few of
them. The longs are spread out and operate independently of each
other, just as it should be. The shorts are cohesive and all read
from the same playbook, in defiance of commodity law.

Generally, the concentrated net long and net short positions of the
largest traders are comparable. In the majority of markets, the
position of the longs is equal to or larger than that of the shorts.
These markets include wheat, corn, and soybeans, 3-month Euros, 2-
year, 5-year and 10-year notes, 30-year bonds, some stock indices,
hogs, cattle, cotton, and coffee, heating oil, crude oil, natural
gas and gasoline. This appears normal, as legitimate and opposing
economic requirements lead to rough balance between the largest
traders in every market. But that's not the case with silver.

In the silver market, the concentrated short position towers over
the concentrated long position to an extent not found anywhere. What
can we say about this extreme condition in silver? Well, for
starters, since you have to have concentration to have a
manipulation, no one can dare suggest that silver is manipulated to
the upside. However, on the short side, the unusual and extreme
concentration makes a downward manipulation, not just possible, but

Turn this situation around and imagine that the extreme
concentration in silver was on the long side. The regulators would
be all over a concentrated futures long position of 180 million
ounces, just like they were with the Hunts in 1980. The regulators
at the CFTC and the NYMEX know that commodity law does not favor the
shorts over the longs. So why do the regulators allow this?

Furthermore, this concentrated short position appears to be naked.
If so, it can result in delivery default problems. Just last week,
Commissioner Hatfield was warning the Silver Users Association about
the supply of silver, due to the silver ETF, and nationalization
fears in Latin America. Is the Commissioner aware of this
concentrated short position? Will he or the CFTC or the COMEX
guarantee there will be no problems in delivery or pricing because
of it?

To make matters potentially much worse, the term "4 or less" is
intentionally vague enough to hide the fact that one trader may hold
the lion's share of the 180 million ounces. In my opinion, the
largest single trader holds more than 100 million ounces. This is
equal to what the Hunts held in 1980. Because it is short position,
it is potentially more disruptive than a concentrated long.

The remarkable thing about the concentrated short position in COMEX
silver is that it has emerged even as the total dealer short
position has been reduced. This phenomenon is what directed me
towards the extreme level of concentration. In other words, while
all the dealers are closing out short positions, the very biggest
trader(s) is becoming more isolated and makes up the highest
percentage of total dealer net shorts ever, around 75% of the total
commercial net short position. What percentage does it have to reach
before the CFTC reacts?

This is what makes the manipulation so obvious. Against a widely
dispersed long position, the short position is more concentrated
than ever. The CFTC maintains and publishes the concentration ratios
for a reason. That reason is not to give me something to write
about. The reason is to prevent manipulation. I think it is time for
the CFTC to analyze and act on their own data.

I am sending this article to the new chairmen of the CFTC and the
NYMEX/COMEX, with a cover letter asking that they look into and
respond to this issue. Generally speaking, there is a better chance
of a timely response if many people contact them. If you do decide
to contact them, please feel free to send my article.

The Honorable Reuben Jeffery III, Chairman
Commodity Futures Trading Commission
3 Lafayette Centre
1155 21st St. NW
Washington, DC, 20581

Richard Schaeffer, Chairman
World Financial Center
1 North End Ave.
New York, NY 10282-1101


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