on silver - butler's latest

  1. dub
    30,524 Posts.
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    WEEKLY COMMENTARY

    January 25, 2005


    INTERVIEW WITH THEODORE BUTLER

    Cook: Since we teamed, up silver has doubled in price. You have suggested a much bigger increase. Could this be all we’re going to get?

    Butler: No. Without putting too fine of a timeline on it, I think we’re just getting started. There are still many, many dollars to the upside from here. In some ways, silver is a much better buy here than it was at lower prices a while back.

    Cook: In what respect?

    Butler: Because, I think we won’t have to wait as long to see meaningful increases in price. Obviously, buying silver at four or five dollars is better than six or seven, but unless someone can beam himself back in time, you have to deal with current reality.

    Cook: Which is?

    Butler: We’re still at bargain prices and the wait shouldn’t be very long from this point.

    Cook: Why do you say the wait won’t be long?

    Butler: Look around you. A couple of years ago, when silver was lower in price, the commodity world was very different than today. Everything appeared to be plentiful and cheap – energy, metals, everything. Now it’s hard to find any mineral or metal that isn’t in tight supply and at much higher prices.

    Cook: The China effect?

    Butler: Yes. I agree that China and other high-growth Asian areas are behind it.

    Cook: Will this demand last?

    Butler: It looks like a short-term and long-term phenomenon. Silver was in a deficit before the other metals went into deficits. We’re still using up more silver than we produce, and more people than ever recognize that fact.

    Cook: What about the fall-off in photography?

    Butler: Yes, digital photography has made great inroads into the consumer area, just as it previously did in graphic arts. But that doesn’t necessarily translate into an overall drop in silver usage.

    Cook: Why not?

    Butler: Well, for one thing, even if consumer photo film usage is down, the printing of digital images on photo paper is way up. Silver in film is recyclable, while photo paper isn’t. So we lose silver recovery as film usage declines. I have a source in the recycling industry who has complained for years about the loss of his silver production due to a fall-off in consumer film usage. Talk about ironic.

    Cook: With all this silver demand and lack of supply, why isn’t the price much higher?

    Butler: Come on Jim, you know the answer to that. Manipulation. If there’s a free market explanation for flat prices when demand is outstripping supply, I certainly haven’t heard it. If it weren’t for metals leasing and COMEX short selling, you wouldn’t be asking about low silver prices.

    Cook: When you talk about manipulation, a lot of people think that sounds kooky. How do you overcome that?

    Butler: I know, without a doubt, that the silver market has been, and is, manipulated. I’ve tried to document that as clearly as I possibly can. It’s up to all interested persons to decide for themselves what the weight of the evidence tells them. If they decide it’s manipulated and presents a great bargain, they will buy it. If they think the idea of manipulation is kooky, they probably won’t buy it. If someone really believes that today’s price of silver is fairly decided by free market forces, why would they buy it?

    Cook: How does this so-called manipulation end?

    Butler: It ends with a bang. We suddenly run out of leasing supplies, or the dealers don’t go short on the next rally, or both. There’ll be nothing gradual about it.

    Cook: Who is leasing silver now?

    Butler: Because the leasing of silver is so secretive and done behind closed doors, you can never be sure who’s doing it, unless it slips. Certainly nobody is proudly proclaiming to be leasing metals. If I had to guess, I say China, due to past commitments.

    Cook: Why would the dealers who have made a lot of money on the short side discontinue doing so?

    Butler: Because some of them, at least, are smart enough to know this game is very long in the tooth and that it can only end badly. I’m giving them credit for being smart enough to see the end coming and voluntarily deciding to stop selling short. But I could be very wrong, in that the dealers may not see the end coming, and they will get caught with a full short position on.

    Cook: Have they ever done so in any other commodity?

    Butler: Admittedly not often, but I did see them do it in copper about a year ago. They trimmed their shorts and let the price run to new highs. But you have to remember that silver is exceptionally unique in that the size of the overall short position is so large that there will be no gradual workout. It will come with a bang.

    Cook: What happens to the manipulators? Do they have to get squeezed?

    Butler: There’s a permanent, or residual, short position in the silver market that guarantees that someone will get hurt. But, I still subscribe to the theory that the price explosion comes when the manipulators are the least short they can possibly be. Like right now.

    Cook: These are big boys, the biggest actually. How do they not stay one jump ahead of the rest of us?

    Butler: Well, you are correct that they are among the biggest financial firms in the world and have a decided advantage over the rest of us in terms of inside information. But they also have an inherent disadvantage, in that their great size precludes them from building a large long position.

    Cook: Why can’t they build a large long position?

    Butler: Because there is not enough remaining real silver in the world that could be purchased, nor is there anyone willing to go short to them in large quantities. There has to be a seller for every buyer. The sellers don’t exist in silver for the dealers to buy from The dealers have always been the sellers of last resort.

    Cook: What does that mean, that the dealers have always been the sellers of last resort?

    Butler: It means that on every rally for more than 20 years, the dealers have sold short sufficient quantities of paper silver COMEX contracts to contain and cap every rally. And without that manipulative selling, the price would be well into the double digits.

    Cook: This big bang theory that you subscribe to argues that silver will explode upward with a vengeance. How high could it go?

    Butler: High enough, and with such violence, to take your breath away.

    Cook: What do you think the free market price of silver would be if it came to rest?

    Butler: It depends on where we are in time, and in the economic, business and mining cycle. There will be peaks and valleys. I agree with my friend Izzy that we’re still in the first inning of a very long baseball game. But just to put it into perspective, there will be times in the future when we will have price changes in one day, both up and down, greater than the full current price today.

    Cook: If it stays manipulated, could we continue the present trend of rising prices and sudden declines?

    Butler: Sure, that’s the clear pattern of the manipulation. But it’s important to grasp that silver can’t stay manipulated indefinitely.

    Cook: Why not?

    Butler: Because of the law of supply and demand. Sooner or later, and it’s starting to feel like sooner, we will hit the wall on the physical side. Then the paper COMEX games will be trumped.

    Cook: Is inflation a factor for you?

    Butler: Not really, although it’s only a positive going forward. I recognize and acknowledge inflation as a long term phenomenon, but it plays zero role in my basic analysis. It’s way down on my list of price determinants.

    Cook: Did the inflation of the 1970s cause silver to rise? It certainly seems that way. Or was it solely the Hunt Brothers?

    Butler: I think the inflation then influenced the general psyche and did result in overall buying of the precious metals. And, certainly, the Hunt Brothers played a very important role in the silver explosion. But the important lesson is not how similar things are to the 70s, but how different things are now.

    Cook: How so?

    Butler: Mainly how industrially dependent we have become on silver, and how much less of it remains in existence. We have 2.5 billion less ounces of silver above ground today than in 1980, yet the price is down almost 90% from the peak, not even adjusting for inflation. On top of that we have more people in the world, more buying power and the largest short position ever.

    Cook: What about those that say that household silver will come on the market to be melted at sharply higher prices?

    Butler: I don’t see that as a problem. First off, it remains to be seen if that occurs again. Certainly the stuff that came to market in 1980, can’t be melted again, since it’s gone. More importantly, worries about silver coming to market at $40 or $50 are absurd. We’re under $7 right now, and someone is going to worry about what might happen at $40 or $50? That’s like fretting about what your tax bill might be if you make so much in silver. It’s not something to worry about.

    Cook: Your analysis lately has been breathtaking. Your idea that silver is more scarce than gold is really quite shocking. Any more thoughts on that?

    Butler: Just that it is not widely known or understood yet. That’s the kicker. When the investment world comes to grasp that this is true, then the dramatic price adjustment will take place. Those who act before the rest of the world will reap great rewards.

    Cook: Then you came out with the government statistics indicating that the amount of underground silver yet to be mined is shockingly low. Wouldn’t you think this kind of research would impact the price of silver?

    Butler: Of course it will. It’s just a matter of time. When people first hear of a new idea that is at odds with their preconceived knowledge, there is a natural resistance to accept that new idea or to act on it. That’s what creates the tremendous opportunity.

    Cook: You’re certain it’s that good?

    Butler: Either what I’m writing is correct or it isn’t. I’ve explained my reasoning and documented my sources. It is up to the reader to decide for himself. I can tell you I would never knowingly write anything I didn’t think was completely correct. In the four years you have sponsored my work, how often have you found it to be incorrect?

    Cook: Not very often. Frankly, I can’t think of any important new fact about silver in the past few years that wasn’t introduced by you. You really have come to dominate silver analysis. What motivates you?

    Butler: I think it has to do with remaining true to my main objective, which is trying to end this silver manipulation. Because some of the new things I write about tend to be controversial, I try to be very careful about what I put down on paper. I don’t want to publicly embarrass myself. Nor do I want to see any reader get hurt based on my writings.

    Cook: Okay, so what’s your current advice to these readers?

    Butler: The fundamentals in silver have been, and are at a strong "10", and now the market structure timing model is also at a strong "10". We’ve just witnessed a monumental clean out of tech fund longs and dealer shorts in silver, and probably in gold as we speak (Jan 6). The risk has been taken out of the market and it’s back to dimes to the downside, dollars to the upside in silver. If someone was waiting to buy silver until the tech fund/dealer extreme was resolved, then they should wait no longer. Once again, we are at a true mother of all buying opportunities point.

    ..............................................................

    bye.dub

 
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