silver prices.

#1
commodity trading is new in India. Gold and Silver,like other commodities are
supposedly on a bull run.Gold has doubled in the last year,and everyone expected the rise to continue,it is being artificially kept down,while Silver seems very strong.Gold is being used as a hedge against U.S.$ while silver as an industrial metal.Where are the prices going?
 
#2
The silver market certainly isn't immune to the weakness in Gold, nor is it immune to the action in the Dollar. However, the silver market is still pretty much trading on its own fundamentals but will be impacted significantly by fund action.
 
#3
Is Silver Scandal On the Horizon?
By Kelly Patricia O Meara

One can only speculate, of course, about the outcome of the Enron debacle if investors and regulators had been clued by whistle-blowers into the enormity of the corporation's accounting shenanigans in the years before its implosion. Though it's too late for Enron employees and stockholders, thousands of investors believe a similar implosion is looming in the silver market with potentially catastrophic consequences. Rather than sit back and reap the financial benefits to be gained by what these investors believe will be a much higher price for the precious metal, this indignant army of investors and whistle-blowers has set out to alert federal regulators with the hope of averting another Enron-like disaster.

It's fair to say that when the price of any investment sold as a certainty fails to rise to anticipated levels, accusations of unfair practices and manipulation are likely to arise. Some accusations have merit and some do not. In this instance, there is no mincing of words. Not only do a growing number of investors believe that the silver market has been manipulated to hold down the price of silver, they accuse regulators of the commodities markets of allowing a handful of traders who are "short" silver (betting the price will go down) to commit a fraud by selling paper claims for delivery of silver that the whistle-blowing investors say does not exist.

For nearly two decades Ted Butler, an independent commodity analyst and investor in silver, has been a diligent critic and prolific letter writer to the regulators who oversee the commodities markets. It is respect for his remarkable understanding of the silver market that has encouraged thousands of small investors to barrage regulators and law enforcement with requests for an investigation of what they are convinced is a rigged market.

According to Butler: "The problem is that the silver market has not behaved according to the laws of supply and demand, which holds that if you have more consumption of a commodity than you have production - consuming more than you produce - the price has to rise, and has to rise sharply, to correct that condition. Based on the reports of all accepted statistical services which analyze silver, this condition has been present in the silver market for nearly 15 years, yet the price of silver hasn't risen accordingly."

As Butler puts it: "This causes a reasonable person to ask why the price hasn't risen. My answer is that this kind of action can only take place if the market is for some reason not free to re- spond to the iron law of supply and demand. You cannot have a free market in which consumption is more than production without the price increasing. That is the core principle of the marketplace. It is the essential law on which our capitalist economic system is based, the law of supply and demand, and it doesn't get any simpler than that. If the price of silver appears to be immune to the law of supply and demand, there is something wrong."

The situation in the silver market, Butler continues, "doesn't exist in any other commodity traded, and the bottom line is that we've used up 95 [percent] to 99 percent of a 5,000-year accumulation of silver and are about to hit the wall. The fact is, we no longer can depend upon inventory to supplement the market. The world known silver inventory now stands at about 150 million ounces, the majority of which is stored in the [New York Mercantile Exchange] COMEX warehouses in New York. The world annual production - that is, all the silver produced [mined] from the earth in any given year - now is around 600 million ounces per year. Silver supplied from recycling on a regular basis amounts to another 150 million to 200 million ounces. But current consumption of silver is around 900 million ounces, leaving a deficit of 100 million more ounces of silver being consumed than is produced."

The problem gets worse when you consider that the Commitments of Traders Report (COT) for Jan. 27 reveals that commercial traders have increased their net positions in COMEX silver futures and call options to 470 million ounces. And, according to the COT, just "eight or less" traders have sold 330 million ounces of silver - a total net "short" position "three times the size of total world known silver inventories."

Butler puts it simply: "The 'short' traders have sold silver that they do not have and cannot get unless these 'eight or less' traders have some way of obtaining for delivery all of the world's silver production for the next couple of years. That seems more than a little far-fetched. In 2003 the silver deficit was 87 million ounces, and there have been deficits for the last 15 years. To meet this obligation, silver has been taken from inventory, but now the inventory has dwindled to the point that the sales of silver far exceed even what is in known world inventory."

What will happen, asks Butler, "if the buyers of this silver ['longs' who expect the price to go up] decide to take delivery of their silver contracts, which they have every right to do? What if these buyers of silver say 'Hey, I think I'd like to have my silver?' The reason the seller 'shorts' haven't had to turn over the silver is because the buyer 'longs' haven't demanded delivery. But you know, there's an old saying, 'He who sells what isn't hisn, buys it back or goes to prison.' So the sellers can either scrape up the silver from who knows where or buy it back at extraordinary cost. But at that point the cat is out of the bag. Based on the official numbers of known silver, it just isn't possible to deliver the silver that has been sold. This situation inevitably has to end in default, which is the worst thing that can happen in a market, unless action is taken now. And that's why I, and many other silver investors, have been writing to regulators who oversee these markets, asking them to investigate."

In a September 2002 communication between Butler and former New York Mercantile Exchange (NYMEX) executive vice president Neal Wolkoff, Butler further simplified the matter, even agreeing to end the dialogue if the NYMEX official will verify that the "eight or less" traders can prove that they have the 330 million ounces of silver for which they had sold paper claims into the market separate from the COMEX warehouse inventories.

Citing data from well-known market services, including Gold Fields Mineral Services and the Silver Institute, Wolkoff concluded: "I have found no evidence to support a finding, or even a reasonable belief, that the silver market is being manipulated." But the NYMEX official did not respond to Butler's challenge to show that the "eight or less" traders had the physical silver for which they had sold claims on the market.

Beyond Butler's steady communications with the commodities regulators, increased pressure is being applied by investors who not only believe that Butler is correct but that the numbers speak for themselves. In fact, silver investors feel so strongly about what has been transpiring for more than a decade in the silver market that nearly 3,000 of them have signed a formal request to Eliot Spitzer, the hard-nosed attorney general of New York state, urging him to look into the matter and to "ask the COMEX what safeguards they have in place to ensure that big short position holders can fulfill their responsibility to deliver real silver." The investors say that if any COMEX contracts are broken for "insufficient silver" they hope and expect that Spitzer "will prosecute the silver 'short' check writers to the fullest criminal extent of the law."

Spitzer did not return Insight's calls requesting an interview to discuss these matters, but a source at the Commodities Futures Trading Commission (CFTC), the congressionally mandated commodities regulatory body, tells Insight that the commission is well aware of Butler, growing investor anger and the current letter-writing campaign. "Through the years," says the CFTC source, "we've considered the allegations and examined the merits of them as we are doing in this recent case. As of now, we don't think there is much merit. We take the letters seriously, but we just don't see that there is a manipulation on the 'short' side."

Asked if the CFTC can confirm that the shorts actually have the silver they have sold into the market, the source explained, "Well, obviously we can't say with certainty about every short having silver on every contract. The hypothetical [that longs would request their silver] has never happened, so the amount of deliveries are always a small number relative to the size of the amount of positions traded."

Has the CFTC gone to the "eight or less" and said, "Hey, you've sold 330 million ounces of silver. Do you have the silver to back it up?"

"I'm not going to get into specifically what we've done," the source says, "but we're comfortable that the shorts are not manipulating the market, and at some future date, if there is demand in the market that exceeds the amount of silver that's available for delivery or in the cash market, then prices will react as they do in any market." That is, there will be one enormous spike in the price of silver.

It appears that much of the CFTC's faith that the market is not being manipulated to keep down the price of silver comes from the fact that to date those who have wanted delivery of silver could get it. "I'm not saying that one man's writing [Ted Butler] isn't credible," the CFTC source claims. "I'm saying that the same accusation has been made over 15 years that there is a shortage that requires higher prices, but over that 15 years there has been enough silver to meet consumption demand for every single year. So presumably the claim did not have much behind it."

Chris Bowen, general counsel and chief administrative officer of NYMEX assures Insight there is no problem. "We have received some letters and e-mails on this matter, and we've received over the course of years, probably from the same individuals, claims about markets focused on silver. As we do whenever we receive complaints, we look at them, review them, and we've found that there has never been an issue. We always look at the market information and at the arguments that they make and see if they make any sense."

The following dialogue with the NYMEX counsel about whether the amount of silver sold into the market is supported by physical silver seems murky at best.

Insight: "Has anyone at the NYMEX gone to the 'eight or less' traders and said 'Hey, let's see the silver?'"

Bowen: "As part of our surveillance procedures, we have information about the positions of all large traders in the market. So in that circumstance we have the ability to monitor for any potential situation. In the past we've never found it to be an issue."

Insight: "In the past there was a much larger inventory. Are you looking into whether the 'eight or less' largest commercial traders have the silver to back up their short position?"

Bowen: "We have information for the positions of all the large traders in the market."

Insight: "Do you have information about the amount of silver that they have?"

Bowen: "Correct."

Correct that the commercial shorts have the appropriate amount of silver, or correct that the NYMEX has information about the amount of silver they have or do not have?

It is precisely this kind of ambiguity or evasion that has fueled the fire among the thousands of individual silver investors calling for an investigation.

Bill Murphy, chairman of the Gold Anti-Trust Action Committee (GATA), a nonprofit organization that researches and studies the gold market, long has held that the gold market has been manipulated by a few of the large banks and government entities. Now Murphy has thrown the full weight of his organization behind the accusations raised by Butler and other silver investors. "Look," says Murphy, "the GATA army mobilized to support this effort because of information that we're getting that large investors are going to the COMEX for silver supply because they can't locate it elsewhere in the world in any size. And that's why we're helping Butler expose this fraud. If we're right, they'll be hitting the wall in silver within the next couple of months because they don't have the silver to continue these games. Of course, all these big shorts have to do is buy back the contracts, but they aren't going to do it. Greed has a full-throttle hold on them. Greed and arrogance like that of the boys at Enron. You know, they just kept on with the game."

Murphy drives home his point: "What we're saying to the regulators is, don't wait until a disaster happens. Don't sit there and protect these big shorts because they seem incomparably rich and powerful. Don't let them keep selling silver contracts that they can't possibly fill. When you have a few people with huge positions and the basis of that position is the claim that they have the silver to deliver, they should be required to prove that they aren't selling hot air. Look, we're investors, and yes we have a vested interest, but we know what we're talking about and the numbers support what we're saying. If we're right, and we believe we are, I think we're going to see some real fireworks beginning in March. And even if it's just coincidence, since GATA got involved in asking these questions, silver has risen nearly 70 cents."

Despite murky assurances by the regulators, Butler concurs with Murphy that big changes in the silver market are coming. "There's no great conspiracy," he explains, "it's just pure greed. You don't have to be Albert Einstein to figure out that if you sell something that doesn't exist, there will be a problem when delivery is demanded. These shorts have raked in tens if not hundreds of billions of dollars by keeping the price at depressed levels. This is a big issue, and when silver goes up, it's going to be a huge scandal. As soon as the inventory is gone the price will spike. A sudden, shocking wake-up call is going to be thrust upon us. It's like we're on the Titanic. We've hit the iceberg and the regulators are yelling, 'Hey, there's no problem until this unsinkable ship goes down.'"

Although the numbers appear to support the dire warnings being made by these small investors, there's no telling what hidden information might exist to have convinced regulators that life jackets are not yet necessary. All that is certain, say critics, is that unlike the Enron debacle, the regulators won't be able to claim that they weren't warned about icebergs.

Kelly Patricia O'Meara is an investigative reporter for Insight.
 

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