Ted Butler: Silver dealers can win all the time only through collusion


By Ted Butler
May 4, 2004

The latest Commitments of Traders Report confirmed
the complete flush-out of the 100,000 tech fund gold
longs that were added just before the break in prices.
While tech funds were also flushed out in silver, it was
not as dramatic as in gold.

What was dramatic in silver was the actual fall in price.
Over a 13-trading day period, silver fell from just over $8
to around $5.80, almost a 30 percent decline. Over that
13-day period, there were six days when the price
finished higher, so the entire decline took place in
seven trading days.

I'd like you to think about that for a moment. In seven
trading days, the silver market lost $2.20, for an average
loss of just over 31 cents for each losing day. The silver
market took six months to climb from under $5 to over $8,
almost $3.50, with very few, if any, 31-cent plus days.
Yet we averaged 31 cents a day for the seven days of
losses, with days of close to 50-, 60-, and 80-cent price

How can it be that the downside is so much more
concentrated and severe than the upside?

Many have written to me lately, asking me to more fully
explain my claim that silver is manipulated by the large
short position and coordinated trading by the
concentrated, large commercial dealers, who constantly
trick the brain-dead tech funds (hedge funds,
computer-driven funds, etc.). While this is, admittedly, a
very complicated issue, please allow me to try again to
make it as simple as possible.

I'll use the recent price experience as my example.

I am offering this explanation not only to those who have
written to me but also to the regulators and industry officials
who continue to look the other way.

I think what people find hard to comprehend is how the
dealers can buy back large numbers of contracts they
were short without causing prices to rise. I admit that is
difficult to comprehend but it is exactly what proves that
silver is manipulated.

In any price move there are always buyers and sellers.
When prices fall in silver, the sellers are invariably the
tech funds and other leveraged speculators, and the
buyers are always the dealers. Never, in the history of the
COMEX, have the tech funds, as a group, bought when
prices were falling, and never have the dealers, as a
group, sold into a big price decline. Never.

The dealers always buy into big silver price declines,
covering previously sold short positions. The tech funds
always sell into big silver price declines, selling out
previously purchased long positions. There has never
been an exception to this pattern in COMEX history. You
should be asking yourself: Are these dealers the luckiest
sons of guns in history, to never be wrong and always
getting to buy big and cover on the downside, or is there
more to the story?

Your common sense should be telling you that nobody
can be that lucky, for that long. It's as if someone playing
roulette at a casino won every day for 20 years.

If you've ever speculated in commodity futures, you know it
can't just be luck. Imagine Hillary Clinton doing what she did
in the futures market every day for 20 years. There has to be
another explanation.

Once you dismiss blind luck as a reason for a 20-year win
streak as an explanation, what are you left with?

Like the roulette player who never loses, you have to conclude
that it is a rig job. You may not know exactly how the rigging
takes place, but you know it has to be rigged. No one can be
that lucky.

I'll tell you point blank how they're doing it.

The dealers are colluding. By some pre-arrangement, either by
a formal profit-sharing agreement or by a wink and a nod, the
dealers know beforehand just how they will behave, in unison,
on the floor of the COMEX.

There can be no other possible explanation.

I know that these are strong allegations. This has been an
incredibly powerful manipulation.

We didn't have one 25-cent gap up silver in the six-month
rally, yet we had five 25-cent gap downs in the two weeks

That was just the dealers' good luck? Give me a break.

I know that the tech funds sell indiscriminately, but there is
no way that the dealers were not colluding and conspiring to
collectively pull their bids on the seven collective down days.

It is not possible that the dealers weren't colluding. This is
how the dealers can always cover tens of thousands of
contracts on lower prices, against every normal instinct you
have that their buying should push prices higher. They sell
tens of thousands of naked shorts in a disciplined, orderly
manner, at ever-higher prices on the way up, and then
collectively pull their bids, all at the same time, and buy
only at sharply lower prices. They stick together to control
the market.

The dealers never compete against themselves. That is
their No. 1 if unspoken rule.

Whatever happens, no matter what are the market conditions,
it's all one for all, all for one. The only problem is that this is
not some chivalrous version of the Three Musketeers, this is
a colluding price-fixing cartel, a wolf pack. I can say that with
impunity because it is true. And it's not just silver they illegally
operate in, flouting the basic laws of the free market; it's in lots
of markets, certainly including gold.

It is truly shameful that the regulators allow this to happen.

Speaking of regulators, I have been told by the Commodity
Futures Trading Commission that it plans to respond to the
hundreds of letters and e-mails sent to it as a result my
February 9 commentary, "A Special Invitation". The CFTC
response should be posted on its Internet site this week
or next.

It is unlikely that the CFTC will publish all the letters and
e-mails, which is somewhat disappointing, but I'm told that
it will acknowledge that some 500 letters were received.
There is no question that this is the largest outpouring of
public reaction to any issue in the history of the CFTC.

Once again, thanks for your time and effort.

I am further told by the CFTC that this will be a lengthy
response. I think this reflects the seriousness of this issue,
as there is no more important concern in any market than
that of manipulation.

I don't want to anticipate what the CFTC will say, but there
is no way that it will acknowledge a long-term manipulation
of silver. The commission can't, because the consequences
would be catastrophic. (The manipulators would be liable for
everyone who lost money in silver for the past 20 years.)

I also don't expect any heartfelt gratitude extended to me for
raising and re-raising the issue. That's OK, as I have thick

Nevertheless, I will be studying the CFTC's response, as all
market participants should, especially including the
manipulators, as it may provide important clues when read
between the lines.

There are close to 3,400 names on the petition to New York
Attorney General Eliot Spitzer, a truly significant amount.

I didn't think that many people even followed the silver market.
This is another issue that is not going away.

Attorney General Spitzer, to my knowledge, never received a
fraction of this number of petitioners about any other criminal
allegation to his office, and I know many people have written
to him independent of the petition. While I am impatient with
the lack of demonstrable action by Spitzer's office, there are
other signs that maintain my faith in his honesty and desire
for justice.

For instance, it is very difficult to find AIG's heavy footprints
in the silver market lately.

I had highlighted AIG's involvement in the silver market in a
commentary on December 8, "The Weight of the Evidence,"
in which I speculated that AIG was the kingpin of the Silver
Managers. I had also written to Spitzer at that time, in a
letter never published, in which I asked him to look into the
propriety and legality of this insurance company speculating
in commodities. I also pointed out that virtually none of AIG's
shareholders and policy owners were aware of their
involvement in trading commodities, particularly silver.

AIG is an very large company, the seventh largest company
in the United States by market capitalization. Only six
companies are larger -- GE, Microsoft, Exxon-Mobil, Pfizer,
Citigroup, and Wal-Mart. In addition, AIG has a reputation
for aggressive business practices.

I'm surprised that AIG did not react forcefully to my
allegations. I never heard a word from the company, and it
certainly did not answer the questions I publicly asked
about its involvement in the silver market. The only reaction
I've been able to detect is the sudden disappearance of AIG
from COMEX silver deliveries.

Prior to my commentary and private letter to Attorney
General Spitzer, AIG had been the most active issuer and
receiver of silver deliveries on the COMEX for years. In fact,
its very big deliveries of the December contract was one of
the key points in my commentary.

Since then AIG appears to have abandoned silver deliveries
altogether. Its name has been conspicuous by its absence in
COMEX deliveries from that time.

I don't know if AIG is abandoning the silver business, as I think
the company should, or if it is camouflaging its activity through
other dealers. But I can't help but sense a Spitzer connection
or concern. Hopefully, time will tell.

In another matter, the CEOs of the major silver mining and
resource companies have continued to bury their heads in the
sand during the recent price rig job to the downside.

Specifically, the CEOs of Pan American, Helca, Coeur d'Alene,
and Apex must be singled out, as they all have the funds to
stand up to the manipulators. Instead, they don't even
question what's going on.

I have never seen a group of executives more out of touch with
reality and their shareholders than these silver miners. I have
yet to receive a negative response from any shareholder of a
silver mining company to my suggestion that the miners
deploy 10 percent of their cash on hand to withhold silver
production, or, where they have no production, to buy silver.

Yet the companies won't consider it. The companies won't
even speak up about the clear manipulation in silver, when
every shareholder I've run across knows it to be true.

I've come to the conclusion that either these CEOs are
afraid to do anything dramatic or have no sense of the real
value of their product. I don't think they are worthy to head
their companies, and while there may not be much anyone
can do about it now, the first mining company that does
stand up for the shareholder in these matters will become
the star of the industry.

The behavior of these CEOs makes the case for real silver
over a silver mining company much stronger.

Not that the case for investing in real silver needs to get
easier. In fact, I think this is a particularly good time to
load the boat with real silver, as I indicated last week in my
commentary, "The Mother Of The Mother." The signs pointing to
the coming high value of real silver continue.

As I have written previously, there are two kinds of "paper"
silver, one which is backed by actual, designated real silver,
and one that isn't. It seems that more people are coming to
appreciate this distinction.

Specifically, I am still fascinated by the stories emanating
from Canada concerning large physical silver demands. One,
involving the Central Fund of Canada, is as public as it gets,
as the fund waits for close to 7 million ounces of actual silver,
resulting from the company's recent share offering.

Then there's the partial delivery of silver the fund purchased
six months ago.

I think this is putting real pressure on the dealer community
to come up with this real silver.

It is reasonable to assume that silver demand will keep the
premium on the Central Fund high enough to permit future
stock offerings and purchase more metal. This is good news.

But the other Canadian delivery story (more a strong rumor
than a documented story at this point), also promises to have
a profound impact on the silver market.

I hear that a large institutional investor arranged for private
storage and requested that its silver, which is now in paper
certificate form, be converted to real silver and physically
delivered. All paper silver certificates have this clause, which
enables the owner to demand physical silver, for some
additional charges.

The certificate is already owned and paid for; only the
additional charges must be paid, as well as storage
arranged. (I believe there are literally billions of ounces of
silver certificates throughout the world that have zero real
silver backing them.)

The important point here is that the owner is not buying
silver, just converting his certificates into real metal. I hear
the amount of around 8 million ounces, as previously

If this catches on with other owners of silver certificates,
it could be like a hydrogen bomb in the silver market. The
silver shorts and certificate issuers would go into a panic.

Most certificate owners are reluctant to pay the extra fees
to convert to real silver, as everyone loves a bargain. But if
silver paper certificate owners would just think for a moment
about how easy they are making it for the manipulative
shorts by holding this phony silver paper and how they are
hurting themselves, they would switch to real silver in a

The guy from Canada who started this trend is a smart man.
If others follow him, as well they should, it's lights out
for the shorts.


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