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SilverAndGoldShop.com - News
A Bull In A Silver Shop ~ Mogambo Guru
A Bull In A Silver Shop
Mogambo Guru
October 5, 2006

…Well, maybe not all buying is drying up, as silver market analyst, Ted Butler, reports that in the last 10 months, "
some 150 million ounces of silver can easily be documented to have been bought by investors. Undocumented purchases would add tens of millions more ounces."
 
In fact, when you add it all up, "Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout."
 
Thus, it is easy to see why Mr. Butler is "bullish beyond belief for silver", since this kind of demand means that "In silver, the documented 150 million ounces bought in the first ten months of this year is equal to 15% of all the silver bullion equivalent thought to exist!" Wow!
 
More than one-seventh of all the silver bullion "thought to exist" in the whole world was suddenly bought up in less than a year, and yet the price of silver has been pounded down to less than 20 bucks an ounce? No wonder I am so bullish on silver!
 
He also notes that the gold/silver ratio is at more than 80, which is "one of the biggest differences in history."
 
And not only that, but since there are 4 to 5 billion ounces of gold in the world versus only 1 billion ounces of silver, that means that "the total dollar value of all the gold in the world is worth 300 to 400 times more than all the silver in the world (80 times 4 or 5)".
 
… In dollars and cents, the dollar value of all the gold in the world is about $4 trillion, while the value of all the silver in the world is but a laughably low $10 billion! Where do YOU think the most profit potential lies? Me, too!
 
Speaking Silver's Language
Mogambo Guru
October 5, 2006
 
Everybody knows that I can always be counted on to go ballistic about silver being such a Screaming Freaking Bargain (SFB) because of (according to the most recent Official Mogambo Count (OMC)) more than a dozen very good reasons, which is a lot of reasons, and that at $17-and-change per ounce spot, silver is loudly saying, "Buy me! Buy me!" although obviously not in the literal sense, nor (perhaps less obviously) in the "voices in my head" sense, which shows I am responding to therapy and why everybody is so pleased with me.
 
One of the reasons for my bullishness and bullheadedness about silver is the large short position, which is the number of ounces already sold (opening the short position) but which have not been bought yet (closing out the position), which means these shorts are going to get clobbered if they have to cover their short position by buying silver at a higher price than they sold it.
 
So I was very interested when Ed Steer's Gold and Silver Daily reports says that the commodity futures market report shows that bullion banks' "silver net short position now stands at 213.6 million ounces…about a third of world silver mining production…all held by 'four or less' bullion banks."
 
He characterizes this as "grotesque beyond description", which I guess it is, since it is hard to even imagine such a thing, which implies that these "four or less" banks are so stupid that they would be short silver when the fundamentals are so compelling that my throat is bloody and raw from screaming, "The fundamentals of silver are compelling!"
 
And this is even ignoring the headline "Gold & Silver Market Alert - Buy before the Breakout!" from Julian Phillips at Goldforescaster.com, which reflects my sentiments exactly.
 
In gold, the situation is similar, in that Mr. Steer says, "The bullion banks' net short position now stands at 211,342 contracts… 21.1 million ounces. This is well over 25% of world gold production. This is also grotesque beyond description".
 
Suddenly I see an opportunity to hide my rising excitement and get a quick laugh! So I said, "This means it is NOT 'beyond description' when it is perfectly described by silver, which is also 'grotesque beyond description' and which can be described as 'like gold'! Hahahaha!"
 
Well, I am laughing at my own joke and having a wonderful time when I looked around and noticed that nobody else appreciated my little joke about circular reasoning, which, upon reflection, I admit is pretty bad, and I am pretty embarrassed about it.
 
I don't know why I thought it was funny, except for maybe it's these new pills that are supposed to keep me from screaming my guts out in fear about the coming collapse of the dollar and the attendant horrific rise in consumer prices that destroys America and plunges us into a post-Apocalyptic nightmare. And, parenthetically, they work pretty well, too, except for the catatonia and the, you know, drooling.
Mr. Steer sees my embarrassment and starts talking about how many of the owners of futures contracts in gold and silver said, "We want our metals!"
 
People with inquiring minds want to know, "How much gold and silver was delivered so that we can maybe see if the Mogambo Who Thinks He's So Hot (MWTHSH) is actually turning out to be right about gold and silver going so much higher in price because the despicable Federal Reserve is creating so much money and credit that inflation in consumer prices is guaranteed, which would be indicated by a rising price for silver!"
 
Well, it turn out that "The final totals for August are as follows… gold 5,728 contracts [572,800 ounces] and silver 91 contracts [455,000 ounces]", which doesn't seem like a lot, but what in the hell do I know?
So, I report these things without knowing what they mean because I am pretty stupid and I am just in it for the money, so all I can ever see is the obvious, especially when it is pointed out to me, which he apparently does when he says it means, "August was a big month for gold deliveries…but not for silver. September is a big month for silver deliveries…but not for gold."
 
I still don't know what it means, but a big buying of gold and silver every other month is plenty enough to keep their prices rising and demand growing, which is Another Good Reason (AGR) to buy gold and silver beyond the obvious good reason that they always soar in value and price when the government is acting so irresponsibly, or when the Federal Reserve is acting so irresponsibly, but especially when both of them are acting irresponsibly, like now!
Silver Makes Sense For Gold Investors ~ AMEInfo.com
S&GS Notes: Today (at this writing) the spot price of gold is at $1103.80 and spot price of silver is at $17.59. Doing the math… this represents a ratio of 62.75 to 1. If silver were to maintain or return to its historic ratio of 16 to 1, it would be priced at $68.99 today. So, as you can see, buying silver at prices of even $25 or $30 would be a great buy… let alone our prices of $23, $21.50, and $20.50…

Silver Makes Sense For Gold Investors
from AMEInfo.com
September 10, 2006

If you are convinced by the gold bull case, and the gold price trend is still up according to chartists, silver is not only a logical diversification, it could prove an even more profitable investment. Let us review the relationship between these two metals in general and the silver-to-gold ratio in particular.

Silver behaves much like gold in times of financial crisis and is often spoken of in the same breath under the portmanteau of precious metals. But the best reason for gold bugs to diversify into silver is something called the gold-to-silver price ratio.
 
Now the long-term historical average gold-to-silver price ratio is 16. But this relationship does sometimes get rather out of kilter. Like today when gold is at $610 an ounce and silver hovers around $12 an ounce. And not at $38 as its long-term gold-to-silver price average would suggest.
 
This has happened because silver presently has no perceived monetary role, while the moment a financial crisis is at hand people look for quasi-currencies and silver is a longstanding currency of last resort from ancient times.
 
Monetary role
What that means is that in historical terms silver is cheap in relation to gold. Even more importantly it means that in a financial crisis silver is likely to close this gap and then move in line with gold. In short, silver will outperform gold.
 
Let us say that gold moves to $2,500 an ounce by the end of next year, which is a figure at which options are now being struck. If silver followed gold upwards and regained its historic relationship, then silver would be $156 an ounce, up 13-fold on current prices while gold would be 'only' up four-fold.
Highly successful investor Chris Weber has written an excellent report on this subject. He notes the gold-to-silver ratio has reverted to 16 during other major crisis periods of modern times: World War II; the early 1970s; and in 1979-80 when gold hit its all-time high.
 
Crisis time?
 
Of course, for this to be correct, then you have to agree with the assumption that another major financial crisis is around the corner. Will the US housing downturn precipitate an October crash in US stocks anticipating a recession in 2007? Will problems in Iran cause an oil price spike and a collapse in global stock markets?
 
This is admittedly a bit gloom laden. But why not hedge your bets and prepare for the worst? Then you will be a winner whether your other investments come off nicely or not.
 
It has to be said that Chris Weber is one of the most successful general investors known to the financial community, and that he is long on silver. This is not another fund manager who places your money and takes his commission while you bare the risk. It is a strategy to win whatever happens!
The Tiny Silver Market, Part 3 ~ Jason Hommel
The Tiny Silver Market Part 3
(Over the Counter, "Other Precious Metal" Derivatives, explained by the BIS!)
Jason Hommel
October 6, 2009

I first reviewed the tiny size of the silver market. Investors purchase about $1 billion worth of silver per year. (Tiny Market, Part 1)
 
A few days later, I highlighted the BIS OTC Derivatives for "other precious metals", which revealed a notional amount of $111 billion, which is about 111 times larger than the annual investment demand for real physical silver. (Tiny Market, Part 2)
 
Fortunately for all of us, a man who read my articles took action, and emailed the BIS, and asked some good questions, which revealed some good answers.
 
First, I will admit that much of the discussion on how the BIS counts the figures is over my head. But for those who question the validity of the numbers it is instructive to note what the BIS does say, at the first link in their answer, paragraph II under, "coverage".
"All published figures are adjusted for double-counting resulting from positions between reporting institutions."
 
That means the figures are more accurate than some might think.
 
It is also important to note the distinction between the notional values, and the gross values, both of which are listed at the BIS data charts for OTC derivatives, here:
 
 
The notional value is the value based on the actual metal underlying the contract. So a silver contract, either a futures contract or an option, for 5000 oz, at $17/oz., would have a notional value of $17 x 5000 = $85,000.
 
The gross value is dependent upon the price paid for the contracts, so if you could buy such a contract for about 10% down, and get 10:1 leverage, the gross value would be more around $8500.
 
Unfortunately, the BIS states that they don't think the notional values represent true risk. This is unfortunate, since the notional values might represent only a fraction of the true risk.
 
For example, if a short position requires only $8500 to initiate, which "controls" $85,000 worth of silver at $17, and if silver prices double, then the liability on the short side is 100% of the notional value.
 
But if silver runs to $170/oz., then the short side liability is 9 times the notional value!
 
Remember, the notional values in the silver market are somewhat close to the $111 billion figure, the difference being platinum. Clearly, they sold way more silver than exists. If they have to cover that, or deliver that, then they could push the silver price more than ten times higher than today, so the potential silver liability could well exceed $1 trillion.
 
Oh yes, a man emailed me today, wondering why I'm not commenting on why silver and gold are making this breakout move. Hello? It's everything I'm talking about. The fundamentals. People are waking up to the fact that the real silver market is a $1 billion market, and the fraudulent silver market is $150 billion, and the fraudulent "money" markets are $400,000 billion. That realization is enough. China buying, too. Whatever. The silver market is tiny, too small to accomodate significant buying, without the price moving up. That's what a "small" market means. Price must go up.
 
The Tiny Silver Market, Part 2 ~ Jason Hommel
The Tiny Silver Market Part 2
(Over the Counter Silver Derivatives, Exposed!)
Jason Hommel
October 1, 2009

Last week, I reviewed the tiny size of the silver market. (Tiny Silver Market, Part 1) 
I compared the following statistics:

World annual silver investment demand ($1 billion)
World annual gold demand ($80 billion)
Federal Budget ($3,000 billion)
China's foreign exchange reserves ($2130 billion)
China wants to diversify $80 billion into gold.

BIS reports "other precious metals" over the counter derivatives worth $111 billion.
 
Very few people understood the importance of the last item from the BIS, which will be explained in this report. The BIS is the "Bank of International Settlements".
 
The Bank of International Settlements reports there are $111 billion in "Other Precious Metals (IE, Silver) over the counter derivatives, as of Dec. 2008. (We await June 2009 stats.)
 
The BIS keeps track of statistics of most of the banks of the world. This number, the "other precious metals" over the counter derivatives is very important.
 
It is extremely important "breaking news" that nobody in this industry is covering. I've tried to make the importance known over the past year by repeatedly mentioning this information, but nobody is getting it.
For ten years, I've been told by all the experts in the precious metals industry that nobody knows nor can know the size of the "over the counter" derivatives, since they are not on the popular, relatively more transparent exchanges, such as the COMEX, and other futures exchanges.
 
Yet, here we have a report, by the BIS, the best source in the world, fully admitting, and counting, the overall size of precious metals, OVER THE COUNTER, usually non-transparent, derivatives!
 
 
THIS IS BREAKING NEWS! I don't care if the stats are nearly a year old, nobody else is paying attention, so this is NEWS! It's not in regular news, not in "alternative" news, not even showing up in our "precious metals" industry news sources. This is a crucial report for our industry, nearly hidden, and unacknowledged!
 
Here's what I think it means.
 
How can there be $110 billion of silver investments when the annual silver investment demand is $1 billion?
 
Think about that.
 
I think it shows that the $110 billion is all a scam, fraud, nothing but fractional reserve silver accounts!
This over the counter BIS-revealed fraud is the biggest silver fraud in the silver market place.

It is much bigger than the COMEX silver fraud, which is only up to 160,000 contracts of 5000 oz. each, or 800 million oz. of silver by comparison, which is only $13 billion by comparison. The $110 billion is much, much bigger and more important.
 
The large size alone proves that it's too big to be real silver, because the real silver market is tiny. So, what is that $110 billion, exactly?
 
It's mostly all silver derivatives, or silver obligations of some sort, and I think it's usually "silver bullion accounts". The other two possible categories are platinum and palladium, but investors only buy about 1% of those two markets, which are also very tiny themselves, so tiny they can be excluded from consideration.
 
Most of the time, investors who go to buy silver, end up buying paper silver on account with a major bank who does not go out to buy that silver in the marketplace. That's the fraud.
 
The major brokers first try to discourage any and all such investments into silver. But if the client persists, the client will be persuaded to buy allocated or unallocated silver on account with any of the major banks of the world, usually LBMA member banks.
 
Read about their common bullion accounts here: http://www.lbma.org.uk/london/accounts
See if your bank is a "market making member"
http://www.lbma.org.uk/assocn/membrshp
Or even a "full member"
http://www.lbma.org.uk/assocn/ordmembs
 
Check to see if your "silver bank" is on that list!
 
If you have silver on account with any of those banks, you should carefully think about how all those banks can have $110 billion worth of silver "on account" for all their clients, and let their own number vary by up to $80 billion, as it was $190 billion in the previous period, and yet, the annual silver investment market is only $1 billion.
 
And the total annual mine supply of silver is only 600 million oz., at $16/oz., is only $9.6 billion.
 
I would think that banks who owe up to 10 to 20 times worth of annual silver production of silver must be fraud. What do you think?
 
How many people who own that kind of silver "bullion on account" would be capable of getting real silver, before the silver banking fraud collapses? I'd estimate only about 1-2%, because if even that many converted their silver, it could cause a collapse of the entire system!
 
How can the silver banking fraud collapse? In many ways. Silver accounts could be mandatorily converted into dollars, or ameros, or pesos. Remember, just a few years ago in Argentina, Americans in Argentina, who held American Dollars in American bank accounts had their accounts frozen, and converted into Argentinean pesos, at a 75% loss, "because of the law".
 
I'm continually asked if I trust this bank or that bank, or this institution or that institution to hold your silver for you. NO! I don't trust any of them. Look at the size of the fraud. Do the math!
 
It's really simple, Biblically speaking. If you refuse to be responsible for the security and safety of your wealth, then your wealth won't be providing you with the security and safety that you hope that it should.
 
One man has often said, "If you don't hold it, you don't own it."
 
How about this:
"If you didn't accidentally crush your fingers with it, then it doesn't exist!"

Tea Party Silver note: Stay Tuned for Part 3
The Tiny $0.001 Trillion Silver Market ~ Part 1 by Jason Hommel
The Tiny $0.001 Trillion Silver Market Part 1
(Millions, Trillions and Billions, Oh My!)
Jason Hommel
September 25, 2009

The Silver Market is small. Very small. I don't think people quite understand how small it is, nor understand fully the implications, meaning how much higher silver prices must go as the market grows to accommodate future silver buyers.
 
Confusing matters is that the terms million, billion, and trillion mean different things, in different nations, and other nations also have different notations for how to write numbers exceeding 1000. Furthermore, most Americans are also unfamiliar with the terms, since most people don't use these terms in daily life. Who needs a billion french fries? But you do need to understand the numbers, in order to interpret political events, such as the amounts being spent by Congress.
 
Here are the American conventions, which I use in my writings. A thousand is written as 1000 and is notated with commas as 1,000. In America, we use a comma after every three zeros, starting from the far right, so every comma signifies another multiple of 1000.
 
A million is a thousand thousand. 1000 x 1000 = 1,000,000, also written as a million.
A billion is a thousand million. 1,000 x 1,000,000 = 1,000,000,000 also written as a billion.
A trillion is a thousand billion. 1,000 x 1,000,000,000 = 1,000,000,000,000 also written as a trillion.
A quadrillion is a thousand trillion 1,000 x 1,000,000,000,000 = 1,000,000,000,000,000 also written as a quadrillion.
 
Knowing that, we can now interpret the following key figures:
 
The annual Federal Budget these days is about $3 trillion, which can also be written as $3000 billion, or $3,000,000 million, or $3,000,000,000,000.
 
World annual silver production is about 600 million ounces. World annual silver investment is about 50-100 million ounces. All of mine production, and more, including recycling, is consumed by industry, leaving very little left over for any investment.
 
At $16/oz., x 75 million oz. = $1,200 million, or $1.2 billion, or $0.0012 Trillion.
 
Again, let's compare:
 
US annual government spending: $3 trillion
World annual silver investment demand: $0.0012 Trillion
 
Can you say, "The US government is spending way more than exists in the entire world?" I can. It sounds funny to say it, but I understand what I mean when I say it.
 
But that's only silver, some will protest. But adding gold to the mix does not help. Watch.
 
World annual gold mine production is 2500 tonnes, which is (x 32,151 oz/tonne) is 80.3 million ounces. At $1000/oz., that's $80 billion dollars, or $0.08 Trillion.
 
See, not even all the gold in the entire world's annual production would help the US budget. Gold would have to increase by a factor of 3000 / 80, which is 37.5 times, in order for the entire world's gold production to equal the US government's annual budget. See, gold will go way above $37,500/oz. by the time this bull market in gold is finished, because there are other people in the world who want gold in addition to the US government.
 
China wants gold. China has said they want $80 billion worth of gold. China has $2130 billion to spend on gold, or $2.13 trillion of foreign exchange reserves.
 
 
If China tries to buy a mere $80 billion of gold within one year, the gold price will likely head to $1500 to $2000/oz. this year. But China does not want to push up the price of gold to make it double in price. If they do, the value of the remainder of their $2130 billion will be cut in half.
 
Too bad for China, they have no choice. The value of their paper money will be cut by 95% or more anyway, even if they do nothing, as other nations, besides the US and China, also want gold. So it will come down to the reality, for everyone, that some gold is better than no gold! And silver, of course, is always better than gold, because silver will increase in value much faster!
 
China also wants their own people to buy silver!!! !!!
http://www.youtube.com/watch?v=PqFpl31UwPI
 
How will $2,130 billion of China's foreign exchange reserves fit into the annual silver market of $1 billion? Think about it. Think carefully. Think hard. Think!
 
Here's what I think. If China's people started buying $1 billion of silver per year, the silver price would head to $25/oz.
 
If China's people started buying $10 billion of silver per year, the silver price would head to $75/oz.
 
If China's people started buying $100 billion of silver per year, the silver price would head to about $750 per oz.
Can you say "Not enough silver!"? I can. There is a world silver shortage, and there will be a world silver shortage for the next few decades to come, probably until silver exceeds thousands of dollars per ounce in price!
 
There is no possible way that the silver price can be contained for very long, unless they discover a way to divert investment demand away from the limited physical silver, and convince people to hold things like ETFs, or futures contracts, or 'bullion accounts' instead. Oh yes, they have. But not for long, as the truth is getting out.
 
The Bank of International Settlements reports there are $111 billion in "Other Precious Metals (IE, Silver) over the counter derivatives, as of Dec. 2008. (We await June 2009 stats.)
 
Stay Tuned for Part 2 & Part 3
Silver: Past, Present & Future ~ Part I, Ted Butler - Phoenix Silver Summit 2009

Silver: Past, Present & Future  Part I
THEODORE BUTLER'S SPEECH AT THE PHOENIX SILVER SUMMIT 2009
Early March 2009

Good afternoon and thank you for being here. It's an honor to get to speak with so many interested in silver, especially at such an interesting time in history. I'm going to ramble a bit, and try not to get too detailed and save some time for questions where you can get specific.

I'd like to acknowledge a few people who are not here that had an awful lot to do with me being here today. First, I'd like to thank Jim Cook, from Investment Rarities in Minneapolis, for his sponsorship of my work for more than eight years. It was this support that enabled me to devote all my time to studying and contemplating everything I could about silver. Thanks, Jim.

Second, I'd like to thank my friend of 25+ years, Israel Friedman. It was Izzy, who back in 1984, issued to me the challenge to prove him wrong in his analysis of silver. Although I had traded and invested in silver for years before his challenge, I admit to never having studied it in depth. Izzy's claim that the world was and had been consuming more silver than was being produced seemed so at odds with the price at that time, I took up his challenge. I also admit that I thought it would be easy to prove him wrong, although I was well aware of his buying of silver in the $4 range and then selling it in the $40 range a few years later. When I discovered that he was correct, it set off a thought process that I couldn't satisfy. I couldn't reconcile how there could be greater demand for an item than there was current production with prices not moving higher. I'm sure that many had also been deeply perplexed with that puzzle.

For some reason, rather than to simply dismiss and put out of mind something I couldn't figure out, I thought long and hard about the silver supply/demand/pricing enigma. It was that thought process, plus my background as a commodity broker, that led me to the conclusion that the silver market was manipulated by excessive short selling on the COMEX. The actual Eureka Moment came one day as I reading the Wall Street Journal Commodity Tables. It wasn't an accidental discovery. I was looking for something wrong. I was looking for anything that was different about silver that could account for its very different behavior compared to other commodities. After all, we were all taught that when consumption is greater than production, price must rise. Yet silver didn't. The light bulb went off in my head when I realized that COMEX open interest, when converted into real world supplies was completely out of line with every other commodity. This meant that the derivatives market in silver was larger than the underlying host market from which it was derived. A complete absurdity. The paper market tail was wagging the physical market dog. This is something that has remained constant in the subsequent 25 years of manipulation.

Much later, I would come to understand the role of leasing in the silver manipulation, which answered a lot of open questions in my mind. It was Izzy who caused me to be bitten by the silver bug, just as I may have, in turn, infected others, who in turn infected still more. The good news about this silver virus is that instead of giving you the flu or killing you, it could make you rich. For introducing me to silver, thanks Izzy

Finally, I'd like to thank my wife, Mila, who has been subjected to my preoccupation of silver for the entire duration. While I have both suffered along the way and enjoyed the journey, it was always my choice to continue or not. I know it was much harder for Mila as a partner, and a I marvel at her ability to persevere where I know I could not, were our roles reversed. Thanks Mila.

The Past.
The silver story goes back, quite literally, for thousands of years. You won't find many stories of longer duration, except if you're an archeologist. For those thousands of years, it was prized as money and jewelry and for ornamental objects and as a measurement of wealth. Silver's history is similar to its precious metals brother, gold. Both precious metals were the cause of exploration and the discovery of new worlds, and instrumental in the development and formation of nations, including war. Both gold and silver were dug out of the ground and held and accumulated throughout the ages. For use as money, governments for hundreds of years assigned a fixed ratio of roughly 15 to 16 ounces of silver being worth one ounce of gold. This made sense, because that ratio was close to the rate at which silver came out of the ground compared to gold. There was a lot more silver accumulated above ground than gold, so it further made sense that 16 ounces of silver was equal to one ounce of gold. In the late 1800's tremendous new silver production came to market, due to the massive supplies from the Comstock Load in the western US. Coupled with a demonetarization of silver, but not gold, by many world governments the price of silver plummeted and with that the amount of silver needed to buy one ounce of gold rose to 100 ounces in the 1920's. The world was truly awash in silver.

Coincident with these developments, starting about 100 to 150 years ago, around the same time that the world found itself awash in silver, something else dramatic was occurring. We began to enter the industrial age. Inventions and devices of all kinds began to be introduced, impacting the world as never before. Electricity came into wide use. The automobile was born. Photography was introduced. As dramatic as this overall change was to how people lived, the transformation in silver was even more dramatic. It turned out that the substance that the world was awash in, the substance that had been accumulated for thousands of years, had properties that no one could have contemplated through the vast sweep of history. This largely too abundant material was a perfect fit for the rapidly transforming modern and industrial world. Silver was, and is, the best conductor of electricity, the best heat transfer agent, the best reflector of light, a marvelous lubricant, a versatile catalyst and alloy for a wide range of industrial applications, including medical. Silver was the key ingredient that made photography possible. All these uses, plus abundant supply and cheap prices. It was the perfect consumption set up. And consuming silver is something the world took to in a very big way, until this very day.

It was the push into the modern age that caused a parting of the ways between silver and gold in how they were used. Gold has many potential industrial applications, although not near as many as silver. But because gold was, and is, so high-priced compared to silver, it wasn't practical to use it in widespread industrial applications. Because silver was so cheap and abundant, it was used extensively. So extensively, that not only did the world begin to consume every ounce of silver that was taken from the ground, it also began to consume the accumulated inventory from the past.

In 1940, there were approximately 10 billion ounces of silver above ground in the world, with half owned by the US Government. At that time, there was about a billion ounces of gold. Ten times more silver existed in the world than gold. After more than 60 years of over-consumption of silver, of drawing down and depleting the inventories built up over hundreds and even thousands of years, the relationship of how much silver exists above ground compared to gold has flipped. Now there is much more gold left in the world than silver. Currently there are up to 5 times more gold in the world than silver, depending on how you define inventory. Silver inventories have declined from 10 billion ounces in 1940 to 1 billion today. The U.S. government, the largest owner of silver in 1940, with over 5 billion ounces, now owns zero ounces. Gold world inventories, including jewelry, have increased from 1 billion ounces in 1940 to 5 billion today, according to all reputable sources like the World Gold Council.
I ask you to think about that for a moment, there being more gold than silver aboveground, as this is one of the most important factors in silver today. It is also one of the least known facts, even though it is easily verifiable and has evolved over such a long time. When people first hear or read it, they instinctively disbelieve it. 99.9% of the people on the planet, to this day, would tell you that it can't possibly be true that there is more gold than silver in the world. Or even that there is an equal amount of gold and silver. None of this 99.9% has ever taken even a minute to think about it or read or try to verify how much of each remains above ground. They don't have to. Their verification comes every day, as it has every day for decades, from one simple source - the daily price of each. The price of silver and gold is broadcast constantly, to every nook and cranny around the world, that there are 60 to 70 to 80 times more silver in the world than there is gold. That's what 99.9% of the people in the world think. And I'm not just talking about uneducated people in third world countries. I would include the most sophisticated, wealthy and educated people, who have come to believe that the price doesn't lie. I do hope 99% of the people here don't think that.

It is this simple fact, that the relative price of silver compared to gold is so distorted, relative to their respective quantities in existence, that is all anyone needs to know to buy silver. This is not a knock on gold. I will stipulate to and accept as true every bullish argument that anyone could make on gold. You could spend hours or days lecturing me on all the good things that gold has going for it, and I will accept them without dissent. When you are done giving all the bullish gold arguments, I would just add two things. One, all those arguments apply to silver as well, and two, there is less silver than gold.

I'm compressing hundreds and even thousands of years of silver history into a few minutes of time. For many centuries, the world dug up and used silver for money and beauty and wealth. In the last century or so, we discovered incredible new uses for this age-old material and continued to dig it out of the ground, in ever increasing quantities, basically consuming all the newly mined silver plus almost all of the old stuff as well. And even though this is a fairly easy set of facts to verify, only an infinitesimal amount of people are aware of how little silver remains. And in spite of the growing rarity of this age-old cherished and desired material, its price, on any objective measure, is dirt cheap. There is less silver in the world on a per capita basis, than in history, yet the price still reflects super abundance. At the risk of over using a statement I've made in the past, I couldn't make this up if I tried.

The Present
I'm going to include the 5 years or so, maybe even a little longer, as part of the present. Today, thanks to the Internet and other means of communication, including conferences like this, the true silver story is coming out. I think I've played some role in that. Investors, in ever growing numbers are grasping the disconnect between the price and the true value existing in silver. It is this disconnect that presents an exciting investment opportunity.

Perhaps the most unique and attractive characteristic about silver is its dual role as a vital industrial material and its history and desirability as an investment asset. No other commodity comes close to silver in this regard. Of course, we need copper and zinc and lead for industrial purposes, but they have never been considered popular investments in their pure metal state. Same with other natural resources, like oil. None of these commodities can be practically held in one's personal possession. Gold is the primary investment metal, but its high price prevents widespread industrial use. Platinum and palladium are both precious metals and are used extensively in industrial applications, but have not evolved into broad and popular investment assets.

As the true dual role material, silver stands alone. In its industrial consumption role, silver demand has been so strong for the past 60 years, that it has depleted inventories that took hundreds of years to accumulate. Now that industrial demand has been interrupted by current bleak economic circumstances, investment demand is stepping in to take up the slack. And make no mistake, the evidence clearly indicates that an investment rush is developing in silver.

The introduction of the silver and gold ETF's (Exchange Traded Funds) has been the single most important factor on the investment side of silver's dual role. Since the introduction of the first silver ETF, less than three years ago, over 300 million ounces have been absorbed by the various silver ETF's. That is remarkable and much more than I ever thought they could accumulate. More importantly, these ETF's will turn out to be, in my opinion, what my friend Carl Loeb has nicknamed, the Death Star, in that they may absorb all the world's available silver.

Lately, I've noticed quite a bit of suspicion and criticism concerning the legitimacy of the ETF's, particularly the gold ETF's, with the criticism centered on whether the real metal exists that is said to be on deposit. I'd like to add my two cents. Quite frankly, I don't understand this criticism. If someone would prefer to own metal in his own possession or control, they should do so. It's an easy choice. Certainly, this has always been my advice. And it's not like the ETF's are beyond criticism, and I have publicly done so in the past when I detected massive unreported short selling in the big silver ETF, SLV. I think that's fraud, and I think there is currently a big unreported short position in SLV.

But that's not what the current criticism of the gold ETF's is all about. The current criticism revolves around allegations that the metal said to be deposited is not really there, even though serial numbers and weights of all bars are listed. It seems some are claiming that the big quantities of gold flowing to the ETF's are beyond anything reasonable. Where can all this metal be coming from? While I can't personally guarantee the metal is in the ETF's, nor do I wish to, I don't understand this line of thinking. The gold ETF's have been accumulating gold for more than 4 years. In that time, roughly 50 million ounces have been absorbed by the all the gold ETF's. That's one percent of all the gold in the world. Even if you reduce the 5 billion ounce gold inventory by 60%, and say there is 2 billion ounces of gold in good-delivery bullion bar form, the 50 million ounces in gold ETF's is only 2.5% of that 2 billion ounces. Is it so hard to imagine 2.5% of anything being accumulated over 4 years and with more than a doubling in price? After all, the silver ETF's have accumulated almost 30% of total world bullion inventories and little is said of that by gold people.

The fact is, for the most part, the investors who buy the silver and gold ETF's are institutional investors who probably wouldn't buy the metal if the ETF's didn't exist. You would think the gold analysts criticizing the ETF's would recognize that. The buying in the silver and gold ETF's are a very big reason behind the doubling in price in a few years. You would think metal people would be cheering the ETF's on, instead of complaining. Go figure. Look, I understand that investment demand in mining shares has probably suffered as a result of buying in ETF's, but that's a different issue and is no reason to claim that the gold ETF's don't have the metal. Metals prices wouldn't have climbed if there was no metal demand from the ETF's.

Back to silver investment demand. Aside from ETF demand, the past year has seen other compelling evidence of an investment rush into silver. For the first time in any of our lifetimes, we have witnessed a persistent retail investment shortage, characterized by soaring premiums and delays in product delivery. I have to laugh when some people say there is no retail shortage, as the very definition of a shortage is rising premiums and delays in deliveries.

Also, we have witnessed, for twelve straight months, something never seen before. The US Mint, even after doubling its production capacity, hasn't been able to fully supply Silver Eagles in the quantities demanded, for the first time in the 23 year history of the program. There is no doubt in my mind that my friend Izzy is responsible for kicking off the rush into Silver Eagles with his article in December 2007. I know of no one else who recommended Silver Eagles, then or now.

The current economic collapse has resulted in a sharp drop in industrial consumption of all commodities, including silver. Production, while falling, has not yet fallen as much. It will, given silver's byproduct production profile. So, temporarily, we have a "surplus" of silver. Unlike other industrial materials, the surplus in silver is being gobbled up as an investment. Instead of being dumped into exchange warehouse inventories, like copper, zinc, or other industrial metals. Once production of all these metals falls sufficiently enough to balance with industrial consumption, as it must, there should be a shortage in silver that will seem unreal.

The economic condition of the world is dreadful. That it came like a thief in the night makes it more ominous. When and how we turn this around, I haven't a clue. Many of us have worried about this for 30 years or more, hoping it would never come. Despite that hope, the wolf has come to the door. We must deal with it. Fortunately for silver, these scary economic times rev up investment demand. The worse economic conditions become, the more silver investment demand should grow. Silver is positioned well for whatever economic conditions prevail.

(Editor's note: This was the first time Ted Butler has given a talk at a financial seminar. I received this report from a member of the audience. "It gives me great pleasure to tell you that Ted Butler is a 'rock star' of the precious metals investment world! The moment his presentation ended he got a standing ovation, with probably 10-20% of the audience on their feet. It was good that he was followed by a break in the speaker line-up, because he was immediately 'mobbed.'"

 
Silver: Past, Present & Future ~ Part II by Ted Butler at the Phoenix Silver Summit 2009
Silver: Past, Present & Future Part II
THEODORE BUTLER'S SPEECH AT THE PHOENIX SILVER SUMMIT 2009
Early March 2009

I want you to do me a favor. I want you to play a little game of imagination with me. It may sound silly at first, but try to play along, as I want to make the central point of the day. I want you to imagine that in this room, right there, in the space between you and me, is a giant elephant. Not a regular elephant, mind you, but the biggest elephant ever documented. A 26,000 pound African Bush Elephant, 14 feet tall in the shoulders, with absolutely massive tusks. I looked this up, so I'm not misstating the dimensions. Not only is this the biggest elephant ever recorded, it's loud, agitated and it stinks to high heaven, flapping its ears and swinging its giant trunk. And it's right there and has been right there the whole time. I want you to imagine that you've been sitting there, listening to me talk about silver with this 13 ton elephant right there, interrupting my speech all along and scaring the dickens out of you. And the kicker is that we're all trying our best to ignore the elephant. Pretending it's not there, speaking around it. We're all trying to act like it's perfectly normal to be in a room speaking about silver with this giant elephant and trying to act like it's not there, when it clearly is there.
 
The African Bush Elephant in the room is the silver manipulation. But whereas the elephant is imaginary, the silver manipulation is as real as rain. But like the imaginary elephant, most are doing their best to pretend that the silver manipulation doesn't exist. Not me, of course, as the manipulation is the most important pricing factor in silver, and I write on it continuously. I sense I have convinced many thousands of readers that silver is manipulated and maybe many in this room. But it is absolutely amazing to me how so few analysts and industry people publicly speak out on the manipulation.
 
I'm talking of people working for the financial firms and banks whose job it is to follow and write about silver. I'm speaking of those in the mining industry and in particular the Silver Institute. I'm not complaining about this lack of manipulation talk. Maybe at one time it upset me to be so alone, but not anymore. Now it's just amusing. I read everything there is to read on silver and 95% of what I read never refers to the manipulation in any way. I find that bizarre. I find that to be the real life equivalent to my previous imaginary exercise of the elephant and pretending it's not in the room.
 
I'm not demanding that anyone agree with me about silver being manipulated. I'm human and I reserve the right to be wrong. Besides, it's better for me to be the only one making this the main issue. In the past, many did challenge and attempt to refute my allegations of manipulation, especially those in the mining industry, which never made much sense. But as the issue has become so specific as to the documented facts about the concentration, I'm not even hearing lately anyone explaining why I am wrong or answering simple questions, even on the Internet. If there is one thing I have learned about the Internet, because of its shield of anonymity, many love to tell you why you are wrong and they are right, and in generally a rude manner to boot. But I've asked the question for 6 months for how can one or two U.S. banks being short 25% of the world silver production not be manipulative, with no response. I was seriously considering running a contest with a reward for every legitimate answer.
 
Stranger still in the collective avoidance of even talking about a potential market manipulation is that the prime regulator, the CFTC, has initiated a formal investigation into my allegations of manipulation in silver. This is the third silver investigation in less than five years, and the first by their Enforcement Division. This has never occurred in any other commodity. Regardless of the outcome of the investigation, the fact that there is another investigation is extraordinary, in and of itself. Nothing could be a more important issue than whether any market is manipulated or free. You would think that there would be wide discussion on the potential outcome or the merits, pro and con, on the investigation itself. Instead, mum's the word. That so many establishment analysts and mining and industry people can pretend that everything has been completely aboveboard in silver is more bizarre than my elephant in the room example. Especially now that the CFTC has stated that they are investigating.
 
Like all manipulations, the silver manipulation has resulted in an artificial price level. Unlike most manipulations, the one in silver is a downward price manipulation. Admittedly, that does make it harder for folks to grasp the issue. But the saving grace to this manipulation is that those not involved in the manipulation can take advantage of the artificially depressed price. The special essence of this manipulation is that outsiders can profit from it in a simple and easy manner. All you have to do is buy and wait.
 
Like all manipulations, the silver manipulation will end suddenly and the price must move sharply in the opposite direction of the manipulation. In this case, the price of silver will explode upwards, once the manipulation is terminated. Those holding silver when that occurs will be rewarded. This is not complicated.
But what happens if the CFTC's investigation ends with them, once again, finding that no manipulation exists in silver? It doesn't matter. The silver manipulation must end, suddenly and violently, to the upside, no matter what the CFTC says or does. I wouldn't be so naïve as to depend on the CFTC for doing the right thing. The price, having been depressed so low and for so long, must result in a shortage. The shortage has been clearly evident in the retail market for more than a year. Not as clearly, but present nevertheless, are strong signs of a wholesale shortage in the unreported shorting of SLV shares and other wholesale indications. When this shortage hits in earnest, no one will be able to stop the sudden demise of the silver manipulation.
 
You might further ask, "If the manipulation in silver will end regardless of what the CFTC may or may not do, why do you (meaning me) persist in focusing on this issue? Why not just sit back and let it happen? Well, I have no choice in waiting to let it happen, so I guess the question is whether to keep quiet about it. The answer to that is while the manipulation presents the strongest reason for buying silver, it is a market crime of the highest order. There is no more serious market crime than manipulation. It is the equivalent to Murder One, Treason or kidnapping.
 
In addition to providing the most compelling reason for buying silver, the manipulation is a crime in progress. As such it offends my sense of what is right and wrong. Being the best reason for buying silver and being a crime in progress are not mutually exclusive. Just like recommending that people buy silver and write to the regulators and lawmakers complaining about the manipulation is mutually exclusive. And I am gratified that so many have taken the time to contact the regulators, as it has really made all the difference in the world.
In conclusion, the supply/demand set up in silver, which has evolved over an incredibly long period of time, has been one continuous process promising to culminate in an explosion in price at some point. Quite simply, we are rapidly approaching that defining moment when there just won't be enough physical material to go around at anything but rapidly escalating prices. Those escalating prices will encourage and drive others, including industrial consumers, to enter what should become a buying frenzy. Superimpose upon that the sudden destruction of a decades-old downward price manipulation and you have all the necessary ingredients for price event that will be referred to forever.

Thank you and I'd be happy to take any questions you might have.
Warnings Ignored ~ Ted Butler
S&GS Notes:  As promised, this article delves into the short positions in precious metals. Ted Butler is probably THE most prolific author / expert on this subject. I try to provide articles from a variety of sources, but I've sent out several of his articles, simply because he is so knowledgeable and articulate about this subject, a key source in silver investing.

Warnings Ignored
By: Theodore Butler
4 September, 2009
 
Trouble with you is the trouble with me,
Got two good eyes but you still don't see.
Trouble ahead, trouble behind,
And you know that notion just crossed my mind.
 
Casey Jones Grateful Dead
 
A remarkable story recently appeared in a leading Chinese business publication that threatens to upend the world of commodities. It seems that the government of China may be preparing the way for state-owned investment funds to walk away or default on OTC commodity derivatives contracts held with foreign banks if those contracts cause loss to the funds. A good discussion of this issue can be found here, along with links to the original story and a related Reuters article.
 
Even more amazing is that the obligatory follow-up story, in which the threat of default is invariably denied, actually confirms that China is seriously considering defaulting on selected OTC commodity derivatives contracts. Click here. If there is going to be a default by China in select OTC commodity derivatives, silver is a prime candidate.
 
What makes the China story so remarkable to me is that it ties together and confirms much of the silver analyses I have published over the years. In addition, it points to the extraordinary situation that presently exists in silver, not just from an investment and regulatory perspective, but also from a view that impacts the strategic interests of nations, including, but not limited to, the US and China. As always, I ask you to decide for yourself based upon the facts and my speculation.
 
Here are the facts. There is an unusually large concentrated net short position in COMEX silver futures held by 4 or fewer traders, documented by CFTC data. There is no unusually large concentrated position on the long side. Other CFTC data indicate the concentrated silver short position is largely held by one or two US banks, at times reaching 25% of world production. This degree of concentration is unprecedented and not seen in any other commodity. Correspondence from the CFTC to elected officials identifies JPMorgan as the prime holder of the short position, with Morgan having inherited the position in its takeover of Bear Stearns. Requests to the CEO of JPMorgan to deny it holds the large silver short position on the COMEX have gone unanswered.
 
For years, the CFTC has investigated my allegations of manipulation in silver, and in 2004 and 2008, they denied such a manipulation exists. It is thought they will comment soon on the third investigation, begun a year ago. In none of the three investigations have they contacted me, although I was the impetus behind each investigation. Over the past five years, the silver short position has grown more concentrated. About six years ago, based upon input from my friend and mentor, Izzy Friedman, I first speculated that China was the big short behind the COMEX silver short position.
 
More recently, in December 2007, I publicly and privately warned the CFTC and Commissioner Bart Chilton of what a disaster it would be if the foreign backers to the short position in COMEX silver decided to walk away from their obligations. In that letter, I wrote;
 
"…these giant foreign silver shorts represent a grave and unique danger to our country, not just because they hold a controlling position in COMEX silver futures, but also because of the nature of that position.
 
In its own words, the New York Mercantile Exchange, Inc., (which owns the COMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals. As such, the NYMEX/COMEX is a financial institution important to the interests of our country. The highest regulatory attention should be placed on anything that threatened its existence. The 4 large foreign silver shorts represent such a threat.
 
If and when these four large traders decide they have had enough of the short side of silver, instead of covering their short positions or delivering actual silver, they could declare force majeure and simply walk away and leave the regulators and NYMEX clearing members holding the bag. Since they are outside the jurisdiction of the Commission, there is, currently, little to prevent this."
 
I don't know how I could have been clearer in my warning. I don't know how the stories coming from China could highlight those dangers any clearer. Not only is the concentrated short position clearly manipulative to the price of silver, the danger of a default has never loomed larger. Perhaps the recent price action is reflecting that growing awareness. In spite of this clear warning, the CFTC concluded, in May 2008, that there was nothing wrong in silver.
 
It is important to put the current situation into proper perspective. Here's my take. Sometime around ten years ago, the now-disgraced derivatives powerhouse AIG, through their China connections, convinced certain state-owned companies of that country to enter into massive OTC short contracts on silver. China's growing share of silver refining production was the cover story. The real purpose, however, was to give AIG backing for selling short silver contracts on the COMEX for the purpose of hoodwinking the technical funds into and out of paper positions on the COMEX. This worked like clockwork for years. Pressure from me and many readers, through then-New York Attorney General Eliot Spitzer quietly forced AIG to abandon and transfer their COMEX silver (and probably gold) short position to Bear Stearns, another large clearing firm, like AIG. The Chinese OTC silver short position was assumed by Bear Stearns as a counter-party and Bear Stearns then continued the COMEX manipulation and fleecing of the technical funds and other speculative traders.
 
The frequent complaints to the CFTC about the outsized short position and obvious manipulative trading activities on the COMEX were rebuffed by the Commission because Bear Stearns, like AIG before them, could show on paper that they had existing OTC offsets with China that "backed" the COMEX short positions. As has been shown in other financial scandals, like the Madoff swindle, bureaucrat regulators are often no match for well-connected and persuasive Wall Street power brokers.
 
When Bear Stearns collapsed in March 2008 (incidentally at the then-highest price for silver in decades - $21), there was no one willing to take over their giant COMEX silver short position and the offsetting Chinese OTC contracts. Enter JPMorgan Chase. Remember, this was a time of great stress to the financial system and all efforts were directed to quickly fixing problems that arose. The giant silver short position at Bear Stearns was one such problem. With federal government guarantees against loss and criminal prosecution, JPMorgan did assume the role of master of the silver market. All this was revealed in subsequent Bank Participation Reports and in correspondence from the CFTC to various lawmakers. Since that time, JPMorgan has managed the giant silver short position. My speculation includes that Morgan has quietly offset its COMEX short position over the past year and a half with other unsuspecting parties in the OTC market.
 
What does this all mean and where do we go from here? Get ready for great and growing price volatility. I'll have specific market comments for subscribers over the next couple of days, once the new COT and Bank Participation Reports are released. But this much is clear - the long anticipated default of the massive OTC silver derivatives position by China appears to be at hand. It's hard to imagine a more profound event. All at once, the backing and excuse for the concentrated short position on the COMEX is exposed for the fraud it has always been. No longer can the CFTC pretend that the COMEX silver short position is backed by anything legitimate. Not when China, itself, is saying it may default. So many game changes have emerged in silver over the past few months that it is hard to appreciate them all. These recent announcements by China concerning its future intentions on select OTC commodity derivatives could be the most important of all.
 
I still have great faith that the new chairman of the CFTC, Gary Gensler, has every intention of doing the right thing and will adjust and enforce legitimate speculative position limits in COMEX silver. The new reports out of China make it more imperative that he do so quickly. The threat from China that it may default on contracts that back the concentrated COMEX short position raises the stakes immensely. Unlike his predecessors, and for the good of the country and market integrity, Chairman Gensler must not ignore these warnings.
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