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ROB-TV interviews GATA''s James Turk; GATA Chairman Murphy is next

Section: Daily Dispatches

By Theodore Butler
Tuesday, December 13, 2005

Five years can be either a short or a long time, depending upon
one's perspective. To the very young, eager to speed things up, five
years is an eternity. To the old, eager to slow things down, five
years goes by in a flash. In investment terms, five years sort of
sits in the middle, certainly not short-term but not very long-term
either. But in investment terms, five years is ample time for
reflection and re-analysis of strongly held opinions and

It has been five years since I started writing about silver for
Investment Rarities. In that time I've written close to 200 essays.
Those essays are available on the Internet and a good number have
been bound in print form by IRI. While I try hard to be original and
interesting and have never appropriated anyone's ideas without
acknowledgement, let's face it -- I write about a very specific
topic and it would be impossible not to be repetitive. But
repetition isn't necessarily bad, especially when you are trying to
deliver a message.

The message I have attempted to deliver is that silver has been
artificially depressed in price due to a blatant and easy-to-prove
manipulation and that this manipulation has so distorted the supply
and demand fundamentals as to create a lifetime investment
opportunity for those who take the time to investigate my claims.

I freely admit to holding the very selfish prime motive of seeking
personal satisfaction for documenting in advance and of trying to
terminate a market manipulation that has spanned more than 20 years.
That termination has not yet occurred, and that is mostly good news
for us all. While I don't expect anyone to share my prime motive, I
can further assure you that what stimulates me is intellectual
satisfaction and not some type of retribution against the

What I would expect from potential investors is investigation and
challenge of my consistent claim that real silver is the best
investment possible. I know what my reaction would be if someone
claimed something was the best investment possible. I would want to
know the reasons for such a claim. Did it make sense and sound
plausible? I would want to know the facts backing those reasons.
Were they verifiable? And I would certainly want to know how the
reasons, facts and claims fared against the test of time.

Let's look at the record. While I don't think it is the most
important consideration at any particular point in time, it is
natural to consider price history. From my very first article for
IRI in November 2000, for the next three years, silver was readily
available at $5 per ounce or less and averaged close to $4.50. The
recent move to 18-year highs is about double the lows. As a result
of acting on anything I've written, no real silver investor should
be holding at a loss, with the vast majority showing significant
profit. That is very important to me. Causing anyone to lose money
would bother me very much.

This is not to suggest that silver's price performance to date
proves that it has been the best investment possible. That has yet
to be proven. Many commodities have had similar or better
performance, from copper to oil to natural gas to zinc and to gold.
But none has left silver in the dust. And when you get down to those
commodities that allow for practical real ownership -- namely, the
precious metals -- silver has been the easiest to accumulate at the
most advantageous prices, over the past five years. My point is that
price-wise, silver has not disappointed.

What really should matter to the serious investor, of course, is not
past price performance but the price going forward. You can't profit
on what already has occurred, but only on what will occur. Relying
on past price performance alone is like driving by only looking in
the rear-view mirror; it will tell you where you've been, not
necessarily where you're going. For that you need to be aware of and
judge all current and future developments.

After almost doubling in price over the past five years, do the
supply-and-demand facts in silver still warrant continued
investment? Let me review what was true five years ago and what I
think is the case today and let you decide. Remember, I'm not
talking about the next dollar move up or down in silver, because
that is unknowable. But I do think I know that the next four-dollar
move will be up and that the next eight-dollar move must be up.

Central to the facts surrounding silver is that the market is still
operating in a structural deficit today, as it was five years ago
and for the 50 years before that. We are still consuming more silver
than we are producing. The world is still drawing down silver
inventories, not building them. As I have written repeatedly, a
deficit is the most bullish condition in any commodity.

What has changed over the past five years is that silver is no
longer alone, among the industrial metals, in its deficit
consumption pattern. Declining inventories and skyrocketing prices
in copper, zinc, lead, and other minerals confirm that deficits have
become a fact of life in many items. The common denominator in the
widespread consumption deficits is growing demand, principally from
the East, particularly China and India. There have been no shocking
supply disruptions and production has continued at a very high level
in most metals and minerals. It's just that demand has been
relentless and has overcome production.

This widespread struggle of mine production straining to meet
industrial demand is something the world has never witnessed, to my
knowledge, except perhaps in times of global war. Given the long
lead times needed to ramp up mine production, especially considering
that the easy ore bodies have been exploited already and the
demographics in Asia driving the industrial demand, this does not
appear to be a short-term phenomenon. While deficits can continue
only until inventories are effectively depleted, I am struck with
the thought that we face near-permanent strains on metal production
and mineral extraction as hundreds of millions if not billions of
world citizens strive to improve their standards of living over
coming decades.

The past five years demonstrate to me that we are entering into a
long-term era of natural resource revaluation. After all, only price
can ultimately regulate and balance supply and demand. In other
words, there seems to be no letup to upside price pressures for
natural resources in the long run. We have too many people joining
the demand side of the equation and too few giant and low-cost metal
and mineral discoveries adding to the production side. Even economic
recessions, when and if they occur, should not alter this long-term

If you accept this thesis, how can you profit from it?

The easy answer is to buy silver. The more involved answer is to buy
any depleting industrial metal or mineral that you can, at the
cheapest price possible.

But how does the regular investor make a direct investment in real
oil, natural gas, copper, lead or zinc? He can-t -- Strike 1. And
the soaring profits of the companies producing these commodities
tell you they are not cheap in production terms. That's Strike 2 in
a two-strike investment count. You can't effectively buy them and
they're not cheap anyway, even if they may go higher.

Now compare that to silver. It can be bought by anyone and in any
denomination and can be held personally or in bonafide storage. And
the profits being reported by the silver producers, where they exist
at all, certainly do not suggest a high price. Real silver is do-
able and not expensive.

I-m leaving gold out of this comparison because it is not
industrially consumed and therefore does not have depleting
inventories. Platinum is a precious metal that is consumed
industrially, but at $1,000 an ounce and, considering the profits of
the platinum producers, it could hardly be called inexpensive.
Palladium doesn't look expensive, but I understand it can be
difficult for the average investor to deal in, unlike silver.

But the most important fact that separates silver from any other
metal, mineral, or any other investment item is as true today as it
was five years ago. In fact, it is the essence of what attracted me
to silver more than 20 years ago, aside from the structural deficit.
It is at the heart of every letter, petition and complaint to the
CFTC, COMEX and every regulatory official by me for two decades. It
is the clincher that sets silver apart from anything else. I'm
referring to the short position in COMEX silver.

I know it is hard for the average investor to fully grasp this short-
selling concept, but it is important to try. Short selling is
selling something you don't own or haven't bought yet.
Mathematically, it doesn't really matter if you buy first and then
sell (as is true in almost all transactions) or sell first and buy
later (short selling). You profit if your buy is at a lower price
than your sale and lose if the opposite is true, regardless of
whether you buy or sell first. A short sale is an open transaction
and must eventually be closed out by buying back or by delivering
what was sold.

Short selling is not inherently evil or manipulative, although all
sales are a natural price depressant, just as all buys are a price
enhancer. Morever, short selling is an integral part of futures and
derivatives trading, as there must be a short for every long in
every contract. I am not anti-short selling in principle. But I am
anti-short selling when it is used as a manipulative device, as it
is in COMEX silver.

My contention for two decades is that the short selling in COMEX
silver has been so enormous as to have artificially depressed the
price and created a dangerous (and potentially very profitable)
condition. Simply stated, the short COMEX silver position is larger
than that of any commodity in history when compared to real world
inventories and production. This was true 20 years ago, five years
ago, and today. The COMEX silver short position is so large as to
constitute a massive and ongoing fraud.

That the management of the COMEX and officials from the CFTC look
the other way and sanction this fraud is one of the great scandals
of our day. It is an allegation easy to prove. Only COMEX silver has
a total futures short position (open interest) greater than world
mine production. No other commodity has, or has ever had, such a
ridiculously large short position. It is absurd to have a short
position greater than what exists or could be produced.

This has been the great constant in silver, a short position that is
so large that it cannot be resolved in a normal fashion. Even the
price rally to 18-year highs has had no effect on the massive silver
short position. In fact, the short position has actually grown, as
the big commercial dealers/manipulators have dug in their heels and
have continued to sell short. This does increase the odds of a
selloff, as the dealers will be forced to engineer lower prices and
get the tech funds to sell out, which would allow the dealers to buy
back their short positions. But it is also possible that the dealers
could be overrun for the first time.

This short position should be put in proper perspective by real
silver investors. It is not something to be feared for the long
term, although it can be responsible for short-term volatility. The
price performance over the past five years proves that. Like the
manipulation itself, it is the real silver investors' best friend.
It will be the resolution of this outsized short position that will
tell us when the silver price is no longer manipulated.

Let me speak in some absolutes. This obscene COMEX silver short
position will cease to exist one day in some way; it is not
something that can be maintained indefinitely. When the COMEX silver
short position is no longer out of proportion to the short positions
of all other commodities, the price of silver will be dramatically
higher than current levels. Either the obscene COMEX silver short
position ceases to exist through market forces (which may be quite
violent), or the COMEX silver market itself will cease to exist.

It is important for real silver investors to recognize that the past
five years were merely a warm-up for the next five years. There is
obvious tightness and prospective tightness in just about all
industrial metals and minerals. The long-term fundamentals and
demographics greatly favor natural resources. Of all the candidates
for investment, silver stands out as the best due to its ease and
practicality of ownership and its relative low price, which creates
a compelling risk/reward equation. The unique short position in
silver gives the real silver investor an advantage of unprecedented
dimensions. It does not matter how the short position is resolved,
it will be resolved and that will be good for the real silver

In the spirit of the season, it is appropriate to be mindful of
those around us who need assistance. Particularly if you have been
materially blessed with silver profits, please share your bounty and
good fortune. Much is expected from those to whom much is given. If
you are looking for suggestions, local food banks, homeless
shelters, and other community organizations, including animal rescue
groups, tend to stretch the charity dollar. You can't take it with
you, even if it's silver.

As a postscript, I apologize for not responding to so many e-mails,
particularly those seeking subscription details. Thank you for your
interest. I haven't decided yet if I will launch such a service, but
if I do, I will make an announcement.


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