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It has taken more than 25 years for me to fully comprehend a conclusion
that I never wanted to reach, namely, that there is an organized war against
the price of silver that has come to include the US Government. I think the
US Government involvement came into being almost accidently, but even if it
was an accident of sorts, that does not diminish the serious nature of what
must be described as illegal activity at the highest levels. I am conflicted
between feelings of sadness and outrage.
Starting around 1985, I became convinced that the price of silver was
being manipulated by collusive and concentrated short selling by certain
commercial entities on the world’s leading precious metals commodity
exchange, the COMEX. Having a background in futures trading going back to
1972, it dawned on me that the concentrated and orchestrated short selling
was dominating and, therefore, manipulating the price of silver. The very
first thing I did after this discovery was to petition the regulators at the CFTC
and the COMEX to alert them to the existence of the most serious market crime
possible. My petitions fell on deaf ears but I continued to petition them
through the present. Since this was in the pre-Internet era, I was limited in
convincing others of the silver manipulation due to distribution
restrictions. Communication was very different 25 years ago.
Around 1996, I was exposed to the Internet for the first time and began
to write in my spare time on that medium about the silver (and gold)
manipulation. As a result, more observers came to appreciate the manipulation
and took up the cause of exposing and terminating this serious market crime.
Were it not for the Internet there would be no broad discussion of a silver
or gold price manipulation, even to this day. Certainly, the discussion has
led to multiple official inquiries into a silver manipulation by the CFTC
over the past ten years. I am unaware of any investigation in any other
market based upon wide public contacts to the agency. For sure, there are
many who still reject the premise of a silver or gold manipulation; but at
least there is a discussion about it now, thanks to the Internet.
So why did it take me so long to recognize a US government involvement in
the decades-old silver manipulation? For one thing, I still don’t
believe that the silver manipulation (which began in 1983) was a government
creation from the get go. I know many believe the motive for the silver and
gold manipulation is as a means for the US Government to help keep the dollar
strong in currency markets. I don’t agree. Instead, I believe the
origins of the manipulation can be traced to collusive and concentrated short
selling for profit by large financial institutions, starting with Drexel
Burnham, then on to AIG Trading, Bear Stearns and finally to JPMorgan. These
were the firms at war with higher silver prices, which the US Government
subsequently joined.
The war against silver is not between producers and consumers, as these
vital market participants interact in every market, as they must. All
commodity producers want strong and consistent demand for their products from
financially-healthy consumers who will continue to buy. While all commodity
producers desire the highest price possible for their production, no producer
wishes harm to the buyers of that production. There is no war between the
actual commodity producers and consumers; both interact continuously under
the law of supply and demand.
The war has been waged against all silver market participants by a few
well-connected financial firms and banks for the purpose of price control.
This price control enables JPMorgan and others to capture profits on a
variety of derivatives transactions, including COMEX futures and options
contracts. This is exactly the same motive that caused Barclays to manipulate
LIBOR; interest rates were manipulated for mostly short-term payoffs on
derivatives contracts valued by the rates being manipulated. Likewise,
JPMorgan and others manipulate the price of silver on the COMEX to capture
short term profits on silver derivatives contracts.
An important characteristic of the war on silver is that it is centered
in the world of derivatives, as opposed to the actual world of metal
production and consumption. The main objective of JPMorgan and the other
silver manipulators is to take as much money as possible away from those
holding the counterparty and opposite derivatives positions. Nevertheless,
all producers and holders of metal are harmed when derivatives manipulation
causes silver prices to fall for no legitimate supply/demand explanation, as
is a regular feature of the silver market. That’s because the size and
intensity of trading in COMEX derivatives has grown to be much larger than
the actual market for metal. In a very real sense, actual producers and
holders of metal are innocent bystanders and victims of a private gun battle
between opposing silver derivatives traders. Real producers and holders are
being terrorized by a few derivatives traders, led by JPMorgan.
I suppose some might say that this is the silver big league and that
there will always be winners and losers. I can understand that, but that
implies a level playing field and no cheating. Quite simply, the game is
rigged and JPMorgan and the others do nothing but cheat. The proof lies in
the hugely concentrated short position held by JPMorgan ever since its
takeover of Bear Stearns in March 2008. Throw in the crooked High Frequency
Trading encouraged by the CME Group and you have all the ingredients
necessary to prove manipulation and end the war on silver.
Yet the war on silver has persisted, despite the clear evidence that this
market is manipulated. The reason it has persisted is because the federal
agency whose primary mission is to prevent manipulation has decided to look
the other way. I know that my discussions of market structure and
concentration can get complicated and confusing to many, as much as I try to
simplify it. But what I allege that is happening in silver is not over the
heads of the CFTC. I take pains to explain it to them in their own terms and
legal perspective and by using their own data. Because of those explanations,
the CFTC has said it has been investigating for a silver manipulation for
almost 4 years, but with no conclusion reached. By any standard, that’s
way too long.
What finally convinced me that the CFTC is aligned with JPMorgan and the
other silver manipulators on the COMEX rests on a few specific facts. One is
that the agency has continued to ignore the glaring concentration on the
short side of COMEX silver by JPMorgan and a few other traders. Concentration
is not some term I dreamed up on a whim; it is the CFTC’s most
important frontline defense against manipulation. That is why the agency
publishes and monitors highly detailed concentration data every week for every
regulated market in the Commitment of Traders Report (COT). The Commission
doesn’t publish this data on my request; the concentration data are the
most important feature of the COT. What the COT report has documented for
years is that COMEX silver is the most concentrated major market of all on
the short side. That the agency won’t address this fact is beyond
troubling.
The second fact is the two unusual silver price events of 2011. In the
first week of May 2011, the price of silver fell more than 30% and later,
over a three-day period in September 2011, the price fell 35%. For a world
commodity to fall that much in price within days is beyond unusual. It may be
unprecedented, as I don’t recall many or any such price drops in my 40
year experience with markets. Certainly, for such a price decline to occur in
the same commodity within six months is unthinkable. Further, all the
circumstances surrounding these two price plunges in silver point to these
being manipulative moves, as nothing occurred in the real world of silver
supply and demand to account for them. These price drops were shocking in
that world commodities don’t move like that for no reason.
I had been waiting for the CFTC to file enforcement charges against
JPMorgan and the CME Group for these deliberate silver price smashes; or at
the very least, for the agency to make special reference to these two
unprecedented price declines. It would be impossible for any other world
commodity under the Commission’s jurisdiction to fall 35% in days
without the agency commenting on the price fall. Yet there has been no
statement and no enforcement filing from the CFTC in silver. At some point,
one must conclude that the CFTC does not intend to file charges or comment on
what transpired in silver. By reaching that conclusion, one must also assign
an alternative explanation for the agency’s lack of action. The most
plausible is that the agency has thrown in with the likes of JPMorgan, the
CME and the other silver crooks.
As I indicated previously, my best guess is that the CFTC was compromised
in dealing appropriately with the silver manipulation by interference from
the US Treasury Secretary who oversaw the takeover of Bear Stearns (and its
giant silver and gold short positions) by JPMorgan. It now appears clear that
JPMorgan extracted guarantees of future immunity for manipulation as a
condition of the takeover. The Bear Stearns takeover gave JPMorgan a free
“get out of jail” card from the US Treasury Dept
for the continued silver manipulation. In the political pecking order, the
CFTC is many rungs below the Treasury Dept. It was a deal structured that was
not in the best interest of the American investing public
To recap to this point, there is a war on silver being waged by JPMorgan,
the CME and others on the COMEX. This war necessarily includes innocent
casualties throughout the world of real silver producers and holders, even
though US commodity law strictly forbids such artificial price setting. Worst
of all, it is now apparent that the prime market regulator and public
protector, the CFTC, has thrown in with the crooks. This is so bad, on so
many levels, that one must carefully consider the future investment merits of
silver. Having already done so, please allow me to share my thoughts,
especially in light of the ongoing wave of almost daily revelations of
impropriety and probable criminal behavior on the part of the big banks. We
certainly live in an unusual time.
Perhaps perversely, because of the ongoing silver manipulation and
evidence that the CFTC may be complicit in illegal behavior, I believe the
future price prospects for silver never looked better. Huh? Please hear me
out. The continuing flow of news pointing to widespread wrongdoing by the big
banks, including interest rate manipulation, increases the chance that silver
has been manipulated. It appears to me that the punishment for institutional
wrongdoing is quickly moving towards a criminal phase, which will likely
include jail time. It would not surprise me if some regulators or self regulators were included in future criminal
findings. Certainly, those swearing an oath to protect the public are not
above the law. But how can I be positive about the future price prospects for
silver in such an environment?
The simple fact is that silver has been manipulated for decades and that
has not prevented it from climbing, at times more than any other commodity.
The war on silver rages on, but it does so in starts and fits, with notable
price advances having been recorded along the way. The silver war cannot be
considered to be in its infancy. After all, I’ve petitioned the CFTC
about it for more than 25 years, which is an extraordinarily long period for
such a thing to exist. Like all widespread financial frauds, they become
undone when a critical number of observers recognize the scam and adjust
accordingly. Therefore, since the silver manipulation has been in place for
so many years and is now more widely discussed because of the Internet, the
odds favor it ending sooner, rather than later. I know that it feels like
these crooks can pull it off forever, but common sense and historical
experience suggest otherwise.
More importantly, this war on silver will eventually be decided on the
physical level. Even though it is the derivatives world dictating (false) prices
to the actual world of silver presently, it is impossible for that
circumstance to exist indefinitely. Paper can overwhelm physical only as long
as there is enough physical silver to go around. The point at which the
current tight supply situation in silver slips into the slightest shortage,
additional paper short sales won’t satisfy new buyers of physical
silver. That’s not a theoretical discussion for silver any longer, as
it had been prior to April 2011. For years, it was thought there would always
be a sufficient amount of silver available, given the large world supplies
thought to exist. But shortages were starting to come into place last year,
which accounted for the run to near $50. Yes, the deliberate price smash on
May 1, 2011 broke both the silver price and the budding shortage; but it
could have easily gone the other way and if it did, we would now be looking
(way) down at the $50 price mark. My point is that having come so close to a
genuine silver shortage last year only increases the odds that a shortage
will reemerge. The conditions that existed in the spring of 2011 are more
likely to appear again than not.
While it is unfortunate not to have the CFTC as an ally in the fight
against the silver manipulation, there never was any previous support from
the agency. Instead, time after time, the Commission always sided with the
big short silver manipulators. Undoubtedly, those past denials of a silver
manipulation would create embarrassing questions about the agency’s
historical competence if it were to admit to wrongdoing in silver now. Still,
I admit to a particular disappointment in Chairman Gensler
and Commissioner Chilton since they had offered so much hope through their
public statements about manipulation, concentration, position limits and the
need to protect the public.
The war on silver is real and ongoing. Because it has lasted so long, it
may feel like a war without end. Because the war mongers appear so powerful
and well-connected, it may feel like they are invincible. But feelings do not
always project fact. The fact is that the silver manipulators have been in
retreat. This can be seen in the overall rising price and the fact that
previous silver short kingpins like Drexel, AIG and Bear Stearns have truly
bit the dust. The recent news surrounding the current big silver short,
JPMorgan, seems to project weakness and trouble, not invincibility. Since the
CFTC never aided silver producers and investors in the past, there is no
great loss in the agency continuing not to do its job.
If you are going to be in a war, I would think it is better to recognize
that and react accordingly. That means immunizing yourself against the
artificial pricing as much as possible. The best way to do that is by holding
fully-paid silver positions and no margin. The worst way is by playing the
very derivatives used to manipulate the price. This war is coming to an end
and when it does, the wisdom of owning silver will become obvious. Lastly, it
never hurts to let the regulators know what type of a job they are doing.
Ted Butler
July 18, 2012
ggensler@cftc.gov Chairman Gensler
bchilton@cftc.gov Commissioner
Chilton
jsommers@cftc.gov Commissioner Sommers
somalia@cftc.gov Commissioner O’Malia
mwetjen@cftc.gov Commissioner Wetjen
dmeister@cftc.gov Enforcement
Director Meister
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