Comment Text:
10-005
COMMENT
CL-00901
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enoriega 1 @imap.mail.rcn.net
Sunday, April 11, 2010 6:58 PM
Gensler, Gary ; Dunn, Michael ;
Chilton, Bart ; Sommers, Jill ;
O'Malia, Scott ; Berkovitz, Dan M
Metals Hearing
CFTC Hearing on Position Limits in the Precious Metals
April 11, 2010 - IRI Interview
posted: 4/11/2010
Here's a sneak preview of an interview I did last week with Jim Cook of
Investment Rarities, that's
currently being mailed to IRI clients and should be published on the
Internet next week. This interview
was concluded before the release of this month's Bank Participation Report
on Friday, which indicated
that JPMorgan did not add to its gold and silver COMEX short positions
(through Tuesday, at least.) I will
write about this in the next day or two, but I thought I should send this
interview in the interim.
INTERVIEW WITH TED BUTLER
Mid April 2010
Years ago, Jimmy Stewart played the lead in a movie titled, Mr. Smith Goes
to Washington. In this case,
it was Mr. Butler goes to Washington. Who did you meet with?
A: I met with the senior staff responsible for regulatory matters for about
an hour and a half.
Q: Was the Chairman of the CFTC, Gary Gensler there?
A: He stopped by to introduce himself and chat briefly.
Q: What, in a nutshell was discussed?
A: Basically my long-held premise of a manipulation in COMEX silver via the
documented concentrated
short position. They asked an awful lot of on-the-money questions, to
which I replied directly.
Q: Did you have reason to believe they agreed with your arguments?
A: Since they didn't offer any challenges to what I said, and their follow
up questions didn't seem
argumentative in the least, I sensed they were in basic agreement.
Q: What stands out about the meeting?10-005
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A: The seriousness with which they approached the issue.
Q: The following day, the public hearing took place. What did you think of
that?
A: I thought it was great. Here we had a public meeting that revolved
around the very issues I have
petitioned the CFTC on for 20 years. Much to the Commission's credit, the
fact that they had rejected
my contentions in the past didn't deter them from addressing the issues
openly.
Q: What issues were raised?
A: Whether we should have position limits in silver and gold.
Q: What else?
A: Why there is such a big concentrated short position in silver.
Q: What about whether the price is manipulated?
A: Yes, all of that.
Q: Who was on the other side?
A: The big banks, the exchange and all others from the silver
~establishment" were opposed to hard
position limits.
Q: What was their argument?
A: That is would drive liquidity and business from the COMEX to markets
overseas.
Q: What were they angling for?
A: To preserve the status quo of allowing the biggest traders to continue
to control the market. The big
banks and the exchange are certainly not interested in having a level
playing field.
Q: What about their argument that position limits would reduce liquidity?
A: It clearly was a bogus case, because causing a few large short traders
to reduce their positions would
actually increase liquidity, not decrease it. Legitimate hard position
limits in silver, for example, even if
those limits were reduced to the 1500 contract level I recommend would only
affect less than 1% of all
traders on the COMEX.
Q: Did that point come out?
A: Not at the meeting. But I will be sure to make that point in the future,
in the public comment period.
Q: What exactly is the public comment period?
A: The time when the Commission seeks written input from the public on
specific issues that goes on
the official record.
Q: Should people comment?
A: Absolutely. The hundreds of public comments last year on silver and
gold are what led to this recent
CFTC hearing. It's very important to email or write to the Commission on
this issue. All comments must
be received by April 26, 2010.
Q: Was JPMorgan at the hearing?
A: No.
Q: Why wouldn't they attend?
A: My guess is that they didn't want to answer specific questions and
incriminate themselves.10-005
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Q: The whole thing sounds like a review of all the issues you have raised.
Do you agree?
A: Absolutely. That's what made it so great.
Q: Would it be safe to say that this meeting wouldn't have taken place if
it were not for you?
A: All modesty aside, I don't see how.
Q: What happens next?
A: There has been tremendous attention placed upon the meeting and the
important issues are being
openly discussed and considered.
Q: I'm more interested in what happens next to the price.
A: The price of silver is going a lot higher.
Q: I've already had some complaints that nothing happened after the
hearing. What do we tell these
people?
A: Tell them the same thing you told them at $4, $5, $7, and every other
price over the past ten years.
Look, silver's the best investment to come along in most people's
lifetimes. Have some patience.
Besides, the price did go higher in the days following the meeting.
Q: Do you think position limits will be changed downward?
A: Yes, in silver. At a minimum, the position limits in COMEX silver will
be adjusted downward relative
to gold.
Q: When might this happen?
A: My feeling is after the price has moved up a lot. And I think that will
be soon.
Q: What about exemptions to position limits?
A: Everyone knows that is the key. If they don't crack down on JPMorgan
and the other big shorts, the
CFTC will be discredited.
Q: Do you think the big short sellers expect these changes?
A: I think JPMorgan does. I think the others may be missing what's coming.
Q: They must be taking actions to protect themselves, don't you think?
A: I think JPMorgan is taking action, not the others.
Q: What can they do?
A: Close out their shorts by buying them back or delivering against them,
and most importantly, not
selling short on the next price rally.
Q: Do you see any signs of this?
A: Yes, as regards JPMorgan. And they are the key.
Q: What happens if JPMorgan does sell short on the next rally?
A: I think there will be a public outcry and both JPMorgan and the CFTC
will come under severe
criticism. I know I won't hold back.
Q: You have been very complimentary and supportive of the new Chairman of
the CFTC, Gary Gensler,
in spite of much disagreement. Why so?
A: Look, I judge people by what they say or do, not on some preconceived
notions. He's said and done
the right things.
Q: I see many are jumping on the bandwagon about position limits. How does
that make you feel?10-005
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A: Good. After 20 years, it's about time.
Q: You are the sole person who raised the issue of position limits on
silver. Do you think the CFTC is
finally on board?
A: I think the leadership is.
Q: Exactly what impact do you see these rule changes having in silver?
A: The silver manipulation will be terminated.
Q: What will that do to the price?
A: It should go much higher.
Q: You've expressed to me privately and to our broker staff why you think
people should buy silver
now. Would you state the case here?
A: A number of factors have converged, in addition to the regulatory
matters. The most important of
these factors involve strong signs of an emerging wholesale shortage of
silver.
Q: What signs?
A: Over the past 5 or 6 weeks, there have been unusual movements in COMEX
warehouse silver stocks
and deliveries by JPMorgan, as well as the withdrawal of a significant
amount of silver from the big
silver ETF, SLV. Taken together, these unusual movements suggest the big
dealers are scraping the
bottom of the barrel to come up with the timely delivery of silver to their
wholesale customers. It
appears to me that the big dealers are borrowing silver from Peter in order
to pay Paul. This is a
juggling act in which one misstep will unravel the whole silver scam.
Q: How much silver has been taken out of the SLV?
A: 9.5 million ounces in five weeks. Frankly, it's beginning to look like
there isn't enough silver to go
around.
Q: I know you think silver is better than gold. Why?
A: I don't sense the same juggling act taking place in gold. The critical
difference between gold and
silver is that gold is not consumed industrially, while silver is. As a
result of this critical difference,
there is less silver bullion in the world than gold. Silver's industrial
consumption sets up the likelihood
of a shortage, a condition not present in gold. Silver has investment
demand on top of industrial
demand. Gold has mostly investment demand.
Q: What does this mean to buyers of silver?
A: You can make a lot more money with silver than you can with gold.
Silver can rise much more
percentage wise.
Q: Can you be more specific?
A: I can see gold rising in price 20% or so, under the right circumstances,
say up to $1,300. I can see
silver easily rising 100% to 200%, to $35 or $70. In almost any scenario,
I can see silver outperforming
gold by five or ten times. With silver you are going to get the biggest
bang for your investment dollar.
Q: But gold and silver performance has been roughly equivalent over the10-005
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past ten years, haven't they?
A: I realize that, and both have performed better than stocks or bonds or
real estate. But I am
convinced that the facts point to silver vastly outperforming gold. May I
speak in blunt terms?
Q: I think my ears could handle it.
A: I think that gold investors ~vho don't hold a significant silver exposure
have been lucky to date that
gold has kept pace ~vith silver. And I think these gold investors are being
given a tremendous
opportunity no~v to convert some or all of their gold holdings to silver.
Q: That's not likely to happen in a big ~vay, is it?
A: If all the gold investors ~vere to make the s~vitch there is not enough
silver. But some can. I hope
they do because silver is going to beat the stuffing out of gold
price-~vise, and there are going to be a
lot of gold-only investors ~vho ~vill regret not making the s~vitch.
Q: What can happen ~vith investor demand if prices rise?
A: Initially, it ~vill increase. It's human nature for investment demand to
gro~v as prices increase. Later
on, at much higher prices, investors may begin to sell. When ~ve get to
those much higher prices, ~ve'll
monitor investor behavior.
Q: Are the industrial users still oblivious to the events unfolding in
silver?
A: Absolutely. The example I like to use is that they are like a giant
herd of ~vildebeests on an African
plain, feeding but sniffing the air for the scent of lions. When they do
get the scent, they are all off and
running. When the users get the first silver shipment delay notices, they
~vill all panic and rush to build
silver inventories. I don't see ~vhat can stop it.
Q: What about these pool accounts and silver storage ~vhere there is paper
silver but not real silver?
A: That is a very big problem still, even though so much as been ~vritten
about it over the years. If you
don't have the serial numbers and exact ~veights of the 1000 oz. bars being
held for you, ~vith the
ability to take delivery immediately of those exact same bars, you don't
o~vn silver. Period. How
anyone could continue to hold unallocated and not specifically earmarked
silver is beyond me.
Q: As far as mainstream financial ne~vs is concerned, you are still a voice
in the ~vilderness. Ho~v come
so fe~v people see ~vhat you see?
A: Because they don't take the time to study the facts. It's much easier
to just assume you already
kno~v everything you need to kno~v about silver and skip time-consuming tasks
of actually studying it.
Q: Is that good for silver buyers?
A: Of course. It gives those ~vho do take the time to learn the real silver
facts the opportunity to buy
before the cro~vd ~vakes up. Just ask those ~vho loaded up at single-digit
silver prices. The same ~vill10-005
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be said about buyers at today's prices.
Q: Any ne~v breakthroughs in the uses for silver?
A: Every single day. When you have a material that is the ~vorld's best
conductor of electricity, best
heat transfer agent, best reflector of light, and best biocide, ho~v could
there not be ne~v breakthrough?
Silver is the most versatile metal of all.
Q: Is industrial demand for silver still grooving?
A: Sure. As long as ~vorld GDP and population gro~vs, silver industrial
demand will grow. But what's
really remarkable is the composition of silver demand.
Q: In what way?
A: How many commodities can you name where its main demand engine was
crushed and other new
demands emerged to maintain and increase total demand? None. Yet silver
lost its main demand
sector in photography and still overall demand increased. That's
incredible and shows just how
versatile silver is as a vital industrial material.
Q: What impact do you think China has on silver?
A: Huge; both from a production and refining perspective and as a consumer.
China is currently the
largest consumer of all metals and that doesn't look to change except
accelerate. The long-term
future of the price of silver will be determined by China.
Q: How will they react to a big surge in the silver price?
A: I'm not exactly sure, but if you stick around for a while, I guess we'll
all see with our own eyes.
Q: China recently made silver ownership legal. Are the Chinese people
known to be buying silver?
A: There were reports to that effect a while back, but information from
China is sketchy. I think it's
safe to say, however, that they will play a major role in the future.
Q: What about the inflation factor? Is silver one of the things to own to
offset inflation?
A: Sure, but that's kind of elementary, so I don't write about it much.
There's not much value added in
telling folks what they already know.
Q: Retirees on fixed incomes are getting hurt by low interest rates. They
are afraid to risk their
precious capital in silver. What do you say to them?
A: I understand their dilemma. Sufficient and dependable income from
savings is hard to come by in
today's ultra-low interest rate environment. I'm not a magician who can
turn silver into an income-
producing asset. But I believe it is a safe asset that can grow to many
times its current price. I believe
you will be able to sell it at a profit in the future that will more than
beat the current rate of return of
bonds or CDs, just as it has for the past 5 or 10 years. I think people
should look at it as an alternative
for some of their current savings type accounts.
Q: I feel like we've passed a tremendous milestone in the silver debate.
The main theme you10-005
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introduced years ago has had a complete airing. Ho~vever, that takes us to
the next part of your
equation, ~vhich is your prediction of a dramatic price rise. Ever ~vorry
you could have miscalculated?
A: Sure I do. But the amazing thing is that, while I've always worried
about being wrong, the more I
study the situation, the more I am convinced that the price explosion is
still ahead. It's kind of weird,
even though the price has moved dramatically higher over the past 10 years;
the bullish case is more
compelling than ever.
Q; All along the way you have exhibited great caution and care about the
facts you've presented. For
me that's given you great credibility. It also gives me a lot of
confidence in your forecasting. I know
you don't like to be put on the spot but where could silver go eventually?
A: The reason I'm always hesitant to mention specific prices is because I
don't know and I don't like to
write things that I'm unsure of. In the case of extreme future prices for
silver, however, considering the
dynamics of what could happen to prices in a shortage and short-covering
panic, my hesitance is in
picking too low of a price.
Q: Won't higher prices cause silver substitutes to be used?
A: Sure, but that will take time to unfold. In a panic to the upside,
there will be scant relief due to
substitution in the short term.
Q: What if the big short has been covering its short position over the past
weeks and months. Could
they get this done without driving up the price?
A: To a certain extent, but please remember the price has already gone up
and they have a lot more
covering to do.
Q: Tell us again what happens if they stop shorting in the future?
A: The biggest price controlling mechanism will have stopped and we're in a
whole new era.
Q: Would you say we're off to the races with silver now?
A: When we're truly off to the races, you won't have to ask me, as it will
be obvious. The trick is seeing
it just before they shoot the starting gun. That could be now.
Ted Butler
April 11, 2010
Dear Sir;
Thank you for the opportunity to comment on the issue of position limits
for precious metals. Please10-005
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establish a speculative position limit in COMEX silver of no more than 1500
contracts. Please restrict
any hedging exemptions from those limits to legitimate hedgers. Please stop
the levels of concentration
in COMEX silver futures that have been experienced over the past fe~v years
on the short side of the
market.
Sincerely,
Eric Noriega
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