Bear and all,
As we saw recently, the metals are on a tear with gold breaking $600 and silver near $14. Just wanted your opinion/s on where you think the prices are headed in the short-term? My guess is that gold and silver are due for a much-needed correction in the short-term, but rising oil prices keeps pushing the metals higher; it's like oil is taking the metals for nice ride here!

Thanks and kudos!

I don't know how to analyze the price, but I think the price of either gold or silver is getting weird. I do have funds on gold and metals as for part of my own asset allocation in order to prevent the risk of my other stock funds going wrong somehow. However, the recent roof-hitting price on gold is giving me a hard time (or should I say "heart attack"... )to think whether I should keep them or dump them?! I do think once the crisis between Iran and the US is relieved or the oil price stops going high like crazy, the price of gold and other expensive metal might be corrected IN THE SHOR TERM. But the Economics 101 says the price of everything depends mainly on the supply and demand, so, if there is only limited source of everything (oil, gold, copper,... ), then how about the price IN THE LONG RUN? So, should I keep my funds or not? Any suggestion?

I just bought back most of my precious metal/energy fund... anticipating some price correction in the near future... but when the correction do take place, I will go back to these two markets for sure because I am really positive on their long term outlook..

sharp correction or not... this I am not entirely sure....regardless of silver overbrought in the technical perspective.. it's still going strong!!! In fact, the last time I check it's just over $14...

anything can happen, who knows

so I guess I'll just follow my intuition and enjoy the ride...
in the commodity market, also in life

also, I heard option expiration is on April 25th..

any insights on how this might possibly influence the price in the short run?

some kind of manipulation in metal?
looks like it





A LAST DESPERATE ACT?
by Ed Steer
April 20, 2006


I heard from a very reliable source yesterday (April 19th) that the COMEX was meeting in emergency session. Knowing the reputation of this organization, I imagined that it certainly had to do with the current goings on in the precious metals market…especially silver.

It was obvious to just about everyone who knows about the massive short positions in gold and silver that a short squeeze of biblical proportions was underway. Bill Murphy over at LeMetropole Café had been shouting it from the rooftops for some time as the open interest numbers were indicating just that. Then Ted Butler』s latest commentary 「A Cornered Rat?」 put the icing on the cake.

The COMEX had been raising the margin requirements for silver at a pretty steady clip, with another one just announced for May…so I was wondering, as I sat at my computer terminal last night, what nefarious act they could come up with to put the kibosh on this parabolic rise in the gold and silver price. Well, I found out when I turned on the computer this morning…the dealers (commercials) had pulled their bids in the COMEX silver and gold pits.

Since Ted Butler won』t be writing for at least another week, I thought I』d comment for him. I could just see the dealers in the pits right now…standing there with their arms folded as the longs (including the tech funds) sold into a vacuum. Since there were no buyers…the price fell off a cliff immediately.

When the sellers did catch a bid, it was the desperate dealer shorts standing there with buckets to collect the equally desperate long positions that were being dumped. This is the engineered sell-off that Ted Butler had been waiting for for so long. This is brazen market manipulation at its worst…engineered by the very people are supposed to be preventing this sort of thing.

Is this the last desperate act of desperate men? I think it is. This is Cartel rearguard action at its finest. They are in a far better position to see things than we are. With the Iranian situation coming to a head within the next two weeks, the US is now in a position where it (probably in conjunction with a client state) must act against Iran or lose all credibility in the Middle East. The dealer shorts know that too. They also know all about peak oil, fiat currencies and the upcoming silver ETF…and want to be on the last stagecoach out of Dodge before everything comes unglued.

Hold onto your precious metals positions, boys and girls…as this too shall pass!

© 2006 Ed Steer

China could be the biggest player behind recent silver short-selling...!!


A Cornered Rat?

By Theodore Butler

(This essay was written by silver analyst Theodore butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

The recent price moves in commodities, particularly the metals, have been nothing short of spectacular. We are witnessing unprecedented gains in copper and zinc, as well as impressive moves in gold and silver. In just a few short years or less, copper has quadrupled, zinc and silver have tripled, and gold has more than doubled.

The common denominator for the gains is unrelenting demand for raw materials of all kinds, with change at the margin centered in China and India. Much has been written on this subject and those who investigated and took action have no doubt reaped great investment returns. It is no secret that I have long favored silver as the best way to play the commodity resource boom, and I still do. I am pleased that so many have taken advantage of what was, in retrospect, an extremely low risk/high reward opportunity.

Obviously, not everyone is happy about the price rise in silver. Of course, I referring to the silver short sellers. As long-time readers know, I have tried to document the long-term manipulation in silver as being linked to the oversized short position and to leasing. Now that the price has broken free from the shackles of the depressed price band of the past 20 years, what can we say about the short position? Plenty. For starters, the shorts are out a ton of money on the price rise to date.

While I intend to comment primarily on the COMEX silver short position, which is the largest verifiable short position ever witnessed in financial history, please remember that this is only one component of the total silver short position. In addition to the gargantuan COMEX short position, there exists separate short positions in bank silver certificates and forward selling/leasing arrangements, including leveraged and pool accounts. All told, the real combined short position in silver runs into the billions of ounces in my estimation. Therefore, the open liabilities to the shorts are nothing less than staggering, and threaten to become even more nightmarish.

The only things missing in the silver price rise to date have been any signs of panic short covering and disorderly pricing. At some point, however, I am convinced that must come. The one thing common to every silver short is that they all can be required to deliver real metal if the counterparties, the longs, demand it. Since it is easy to document that there are many more shorts than there exists real metal to deliver, it is only a matter of time before a good number of the shorts move to buy back their short silver positions. There promises to be much pushing and shoving and panic when that occurs in earnest.

Since the ultimate rush to buy back silver short positions seems inevitable, it is natural to be alert to any clues that may signal a genuine commencement of the short covering. One of the first places to look is in the weekly Commitment of Traders Report (COT). It is my long-term belief that the unusually large and permanent net short position of the commercial dealers has capped the price of silver for more than 20 years. I have tried to document how the dealers, acting in wolf-pack manner, have colluded to rig the price of silver to their advantage, by preying on the mechanical technical hedge funds. As long as the pack maintained discipline and unity, the dealers could exploit the tech funds at will. The most recent COT report, however, contains information suggestive that the unity of the pack may be disintegrating.

For the first time that I can recall, the latest COT indicates dealer net short covering on strong upticks in price. While this may prove to be an aberration and we must await continuing confirmation in subsequent reports, it is a clue that makes one sit up and take notice. At the very least, it may indicate an unwillingness by the dealers to increase their net short position, which could, by itself, represent a sea change in silver market structure. After all, if the silver sellers of last resort lose their appetite for selling, who will cap the price?

More importantly, the unusual decline in the dealer net short position on sharply rising prices is not the only promising clue offered in the latest COT. In addition, an analysis of the concentration ratio data indicates that the unity of the wolf pack may have deteriorated even more than the reduced total dealer net short position would indicate. While the total net dealer short position is down, the amount held by the very largest traders (or trader) is actually up. In other words, the leader(s) of the pack is assuming a larger share of the total silver short position, becoming more aggressive (and perhaps isolated), as the rest of the pack grows more timid and may be retreating. And this is not just a one-week phenomenon, but a trend that has been developing for more than a month.

One question, of course, is what is precipitating this potential change in pack behavior? One obvious answer may be the large and growing open loss that comes with holding a large short position in a sharply rising market. Everyone has a limit on how much loss can be tolerated and with the total loss on the silver short position in the billions, it is reasonable to assume that some dealers are moving to limit continued losses by buying back some shorts. This would be considered normal and expected.

But because the silver short position is unique and beyond compare in size to any other commodity, it is not possible for it to be bought back significantly, or covered quickly without price disorderliness. You don unwind a long-term manipulation by snapping your fingers. The pack, or at least, the leader(s) of the pack knows this and must move to mitigate any breaking of the ranks by assuming more of the short position, lest the price truly explode. As dramatic as the silver price rise has been, without the additional selling by the leader(s), it would have been much more so.

Another question is the leader of the pack selling short additional quantities voluntarily to stay in complete control or out of necessity (to keep the price from exploding)? If you need to sell, but don really want to sell, then the selling takes on the quality of desperation. In that case, the analogy to a cohesive wolf pack is no longer appropriate; a better example would be a cornered rat. Still dangerous and perhaps capable of inflicting damage out of desperation, but not the formidable predator the pack once represented. Desperation can still result in a sharp, but temporary, sell-off. As always for investors, the perfect antidote for either the wolf pack or the cornered rat is a fully paid-for position in physical silver.

If my readings from the COT are close to correct, it is reasonable to speculate just who the big concentrated silver short may be. And it must be considered a speculation, as commodity law prohibits the CFTC from disclosing actual identities of the big traders. My best guess is still China. Actually, the basis for my guess comes from my silver Godfather, Izzy, as I indicated in a couple of articles two or three years ago,

"Is Red China The Big Silver Short" http://www.investmentrarities.com/07-08-03.html

And "China Controls Silver" http://www.investmentrarities.com/05-24-04.html

I even wrote to the head of the Chinese central bank on the matter. If it does turn out that China is the big silver short, at least they can say they weren warned, same as the regulators in this country.

Remarkably, since I wrote those articles, China surfaced as being heavily involved in two subsequent short selling debacles, the oil fiasco by China Aviation Fuel http://www.investmentrarities.com/12-07-04.html and the copper short scandal http://www.investmentrarities.com/11-29-05.html My point is that while I am speculating as to China possibly being the big silver short, their emergence as being involved in disastrous short selling of both oil and copper certainly does not detract from my speculation. And I do hope that it is China who is the big silver short, as it would appear that their pockets are deep enough to underwrite and satisfy the financial responsibilities of being short to this extent.

The who is less important than the fact that their unique silver short position exists. We live in a world where many thousands and thousands of sophisticated and well-funded entities are actively seeking investment opportunities of all types. It is what they do and why they exist. The only reason they had not discovered silver is that it wasn on their radar screens. The recent price run-up and attendant publicity has brought silver to the attention of many. Some will do their homework and conclude (just as many of you have done) that silver is a great investment.

The only thing that separates these new financially strong and sophisticated entities in silver from the average retail investor, in my opinion, is their willingness to exploit the inherent weakness of the shorts. Whereas the average investor is content to buy and hold and wait for silver to trade for a free market price, in my experience, the new entities (think hedge funds) will not be so patient, but will be out to intentionally break the backs of the short sellers by demanding physical delivery. They will quickly conclude that physical silver is the prize and the key to destroying the shorts. We live in a financial world where vulnerabilities are not overlooked for long. The silver shorts will certainly come to learn that they are vulnerable.

you bet.

I am going to exit the market for now
come back later and pick up the discounted price when the manipulator(s) stops with their dumping business...





July 8, 2003 (an old article, but still apply)..

Is Red China the Big Silver Short?


By Theodore Butler

(The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

Sometimes, but very rarely, through sheer intelligence and experience, one is able to pinpoint a future event with remarkable precision. Kind of like the scene in the movie, "The Godfather", where the old Don, wounded and aging, warns and counsels his son-successor to beware of him who comes first to make the peace, as he will be the true enemy. That was the movies, of course, but I have my own silver Godfather of sorts in my friend Izzy. I must say that he is the smartest person I have encountered in my life. For years, he has been counseling me that one of the signs that we were likely to explode soon in price, would be the appearance, out of the blue, of bearish stories on silver. He also said that by analyzing the stories carefully, when they came, we could learn the identity of the big silver short.

When I read the following story released today, Izzy's prediction rang loud and clear. After all, who would be more likely to spread bearish stories than a big short? I want to post the entire story here, in the interest of objective analysis:

Shanghai, July 7 (Dow Jones) - China's silver exports in 2003 are expected to reach at least 2,100 metric tons as steady gains for spot silver prices in global markets will encourage more exports in the second half of this year, an executive with a Beijing-based think-tank said Monday. Tang Wujun, vice general manager of semi-official think-tank Beijing Antaike Information Development Co., predicted that the upward trend in spotsilver would last through the rest of this year if a global economic recovery took place.

Although spot silver has fallen from around $5.10 a troy ounce in mid-2002, it has been posting slight but steady gains recently. It was quoted at $4.67-$4.69/oz at 0700 GMT in London Monday, up slightly from $4.48-$4.52/oz quoted a month ago.

Furthermore, "our silver production each year is pretty much larger than our consumption... Therefore, we have to seek overseas buyers to digest our large supply," Tang told Dow Jones Newswires on the sidelines of the China Silver Forum in Shanghai.

China is expected to produce a total of 2,400 tons of silver metal from silver ores as well as slightly over 2,000 tons of silver metal from recycled metal scrap, according to Tang. The country's silver consumption is pegged at only 1,800 tons in 2003. Although this represents an increase of 10% from last year, it is still much lower than total output this year.

In order to reduce the severe oversupply of silver, the Chinese government was likely to sell less state reserves to the public this year, sources close to the government said.

Last year, the government sold 1,600 tons of silver from its reserves, making it the world's largest seller of silver.
---
China Bureau, Dow Jones Newswires, (86-21) 6218-3268
djnews.shanghai@dowjones.com

Now that you've read the entire story, I'd like to analyze it. First off, it has a distinctly bearish bent. There's no other way to interpret, "the severe oversupply of silver....". Remember, we are talking about a commodity in a documented worldwide deficit. Oversupply and deficit are contradictory. It's either one or the other, you can't have both. You either believe the accepted deficit statistics published by western market sources, which are verified by the decline in visible inventories, or you believe a Communist government's attempt to influence the market. And please don't overlook the obvious. Ask yourself this - why is Red China suddenly so generous and open in sharing sensitive commodity information? Do you think they are trying to help you?

As far as the numbers used in story, I will assume them to be correct. China does refine, from ores and recycled material combined, 4400 tons of silver per year, or about 140 million ounces, making them the largest silver refiner in the world. What the story doesn't say is that the bulk of these ores and recycled material are imported into China, as there's no way you can recycle 2000 tons of silver when you consume 1800 tons. As I have previously written about China, it has become the refiner of silver of last resort, due to its blind eye towards pollution. In other words, China is refining silver that was previously refined elsewhere, there has been no net increase in world silver refining production or capacity. The production capacity was switched to China. The story avoided that point - intentionally, in my opinion.

Also of interest in the story was the fact that domestic Chinese consumption grew 10% last year, or almost 200 tons. That means if Chinese silver consumption grows by that amount over the next five years (a given, according to consensus expectations), China will be consuming 1000 more tons of silver annually, or an additional 30 million ounces than currently.

The most important information in the story was the very last sentence, which stated that the Chinese sold 1,600 tons, or over 50 million ounces, from government holdings. It said that China was the world's largest silver seller. Please think about that for a moment. In spite of an obvious attempt to show how much silver China was producing and exporting, there was the stark reality that the Red Chinese government sold (dumped, via leasing) more than 50 million ounces of silver last year, from official government stockpiles. That is all you need to know. It shows how the talk of oversupply is utter nonsense. It confirms the worldwide deficit in silver. In fact, it does a lot more than that.

Recent statistics show a worldwide deficit in silver of around 65 million ounces. That means that just one country, Red China, supplied almost 80% of the existing inventories necessary to balance that deficit. Clearly, without this "donation" from the Red Chinese, silver prices would be much, much higher. If the Chinese didn't dump more than 50 million ounces of existing inventory on the market, the silver would have to come from other sources. If it had to come from other sources, only sharply higher prices could have drawn it to the market. That's how markets work. Stated simply - Red China, just about by itself, has kept silver prices depressed.

Two questions should be crossing your mind - one, what would the price of silver have been if China didn't dump 50 million ounces from official holdings? If you believe in the law of supply and demand, then you know what the answer is - a lot higher. The second question is why would the Chinese dump silver (at historically low prices) at all? Especially when so much refining capacity has been shifted to China. After all, you would think the Chinese would benefit from higher prices and would work towards those higher prices. It is in the attempt to answer this question logically, that my silver Godfather's prediction rings true - Red China is probably the big short in silver. If true, there is one thing of which you can be certain - Red China is working hand in hand with one or more of the Silver Managers

Why would China (or a group of Chinese companies working together) be the big short in silver? There are several possibilities. One, is to make money. As I wrote recently, the Silver Managers have made billions of dollars from COMEX futures and options. Maybe Red China was the big customer that the Silver Managers were hiding behind and working with. They divided the profits. Profits that came from the technical funds and others. Profits made possible from the market control gained by being the world's largest silver seller. With Red China working in cahoots with the Silver Managers, the CFTC would be tricked into thinking this was legitimate hedging. Legitimate, in a pig's foot. If Red China was the big short on the COMEX, while at the same time dumping inventory to depress the price, that doesn't make the price any less manipulated. It just means that China was the mastermind and/or muscle behind the manipulation.

Other possibilities for why China would manipulate silver prices, include an even uglier motivation than just amassing big COMEX trading profits. China is obviously dramatically increasing its share of world silver refining capacity. Perhaps Red China's motive is to keep silver prices artificially low, by dumping silver on the market and shorting like crazy on the COMEX, in order to drive other refining competitors out of business. Motive or not, that is exactly what has occurred. Once enough competition is eliminated, Red China will be in position to set prices to the upside, since they control such a dominant silver refining market share. There are more domestic and international laws that make such predatory pricing and business practices illegal than you could ever name. If it comes out that the CFTC and COMEX management had knowledge that China was, in fact, involved in this manipulative silver scam, they should be drawn and quartered. And if the Silver Managers think they can pass the buck to the Red Chinese, and keep their illicit gains in COMEX silver trading, they better think again.

Think of the negative strategic implications of having Red China dictate silver prices, first down, then up. Silver is a vital component in thousands of industrial applications. That means if silver is unavailable, entire production lines will shut down and workers will be sent home. The US Government, and its western counterparts, are now officially out of silver. All run silver deficits. All must import large amounts of silver. Red China is now the largest silver refiner in the world, and is increasing its share. At some point, Chinese industrial consumption will rise to the level where there is no silver available for export. To watch this develop is distressing to me. When there is not enough silver to go around, and factories around the world must close because of that, you can be sure Red China's factories will take preference over US or European factories for China's silver refining production. And, unfortunately, we have had two wars since I wrote about the defense implications of the US Government running out of silver and being dependent upon imports for more than 50 per cent of US consumption. Having Red China emerge as the largest silver refiner in the world, make matters a lot worse potentially.

What does this China story mean to silver investors? For one thing, it suggests a major name as the manipulator of a major market. This, I suppose, is how it must be. More importantly, it doesn't change anything. The silver market has been manipulated by leasing and uneconomic short selling on the COMEX. The Silver Managers are still the ringleaders. Having Red China emerge as the customer behind the Silver Managers fits perfectly. Motive, means and opportunity. And it explains (almost) how the CFTC and COMEX could turn a blind eye towards the manipulation right in front of them.

Both the CFTC and the COMEX are concerned with futures and options trading. Even though I have presented almost irrefutable evidence of violations of futures trading law (specifically violations of speculative position limits and manipulative COMEX warehouse movements), they have managed to sidestep the issue. But they are definitely not used to dealing with foreign nations involved in dumping. Usually, the Federal Trade Commission or the Commerce Dept. handle dumping charges. But, once it is brought to their intention that a foreign nation, particularly a non-democratic and communist dictatorship, may be involved in both futures law violations and physical commodity dumping, the CFTC and COMEX must open their eyes. Red China is sending unambiguous statements that they are dumping silver and are establishing themselves as the world silver refining powerhouse. If it turns out that China is also a kingpin in COMEX paper trading, that would complete the scam. This should be as simple for the CFTC to prosecute as a paint-by-numbers exercise for a 5 year-old.

I will not ask the CFTC and the COMEX if Red China is a big player on the COMEX, as I know what they will say - the law prevents us from disclosing the identity of traders. But the law also demands that they take action when manipulation and dumping are evident. Is their something about full disclosure that is so sacred that it preempts manipulation? Or are the CFTC and COMEX just selectively interpreting the law?

Will Izzy's premonition that bearish stories on silver prove to be the timing indicator for the major move? Time will tell, but the reasoning certainly sounds logical to me. After all, why would anyone make up bearish stories at this point? The only answer seems to be to send intentional false signals. Maybe Red China has exhausted its government holdings of silver. It seems they have sold well over 150 million ounces over the past 3 years. They will run out someday. Maybe these intentionally planted stories mean they are out of silver to dump, and they are trying to convince others to sell silver, based upon their phony bearish stories. This too is against US commodity law.

The question silver investors must ask themselves is what will happen when the Chinese stop dumping 50 million ounces a year from inventories? We know that must happen, as these, and all, inventories are finite. Where will the silver come from to make up the loss of 50 million ounces of supply? More importantly, what price will be necessary to draw 50 million ounces out of the woodwork, when, not if, China stops dumping silver from inventory? Additionally, my common sense tells me that when China runs out of inventory to dump, it will no longer be the big paper seller of COMEX silver, if they have been the big short. That's a giant double whammy to the upside.

Recently, I have read many stories on silver that mention manipulation and the short position on the COMEX. I think this is terrific and I congratulate the authors. I have raised these issues for more years than I care to remember, and it is gratifying to now see others write about them and confirm my analyses. It feels good not to be so alone, as I was for so many years. I think what may have been the catalyst for the recent trend of articles confirming my thesis has been my question, how can a market even be considered free, if it is in a long term deficit without rising prices? I am sure that the only answer to that question is that market must be manipulated. That is why no one, especially the CFTC and the COMEX, have been able to answer otherwise. That's why I asked the question in the first place.

I think it is important for silver investors to always put this silver manipulation issue into proper perspective. While you might feel the outrage that I feel about the continuing manipulation, and now the possible involvement of Red China, you must also remember that this manipulation is your best friend. Without this manipulation, you would never have the opportunity to buy silver at such give-away prices. Perhaps it is Red China that has made it possible for you to achieve your financial dreams. But only if you seize the moment and buy real silver. Take it from my Silver Godfather - they are making you an offer you can't refuse.

I was wondering why he would use "Red China" throughout the article. Any political stand?

I have no idea ne...

but red is a pretty symbolic colour in China..
(紅衛兵, 五星旗, etc)

"Red china" sounds like a term in 80s, but in 21st century.

Caution! Slippery Road Ahead



Time for some gold correction?