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Jim Cook Interviews Ted Butler

By: Jim Cook & Ted Butler

-- Posted 24 May, 2006 | | Source:

Cook: Weíre starting this interview with silver off sharply from its $15.00 high. How long can this go on?

Butler: Generally, the sharper any move, the quicker it exhausts itself. So I would say this sell-off wonít last long in time.

Cook: How low could it go?

Butler: Iíd be surprised if we went below $12.00.

Cook: Why is that?

Butler: There has been massive liquidation of speculative longs and dealer short-covering.

Cook: Are you saying the dealers got out from under that big short position they had?

Butler: Yes. At least as much as could be covered.

Cook: How did they do that?

Butler: They collusively pulled their bids on the COMEX, forcing the longs to liquidate into a vacuum.

Cook: I thought you said the price would explode when the shorts tried to cover.

Butler: If they tried to cover on the way up. This time they covered the way theyíve always covered Ė by rigging prices down. But remember, for the first time, the dealers covered at a very big loss.

Cook: According to your theory, a price drop reduces the risk. Is this still true?

Butler: Yes. People are ready to jump out the window at precisely the time when most of the risk has been taken out of the market.

Cook: What about the poor price action?

Butler: Thatís a major criterion for a bottom. But you must keep things in perspective. If I guaranteed you less than a year ago that silver would more than double, you would have kissed me. Instead, everyone is focused on the decline from $15. Thatís just human nature.

Cook: Are we going to do this again? I mean, go up and then get slammed down?

Butler: I think this next time up the shorts are going to step aside and refrain from short selling the next rally. That will cause the explosion.

Cook: Why wouldnít they sell again?

Butler: The shorts have gotten killed in other metal markets, like copper, zinc and gold. Shorting has proven to be hazardous to their financial health.

Cook: Did they come out okay on silver?

Butler: Not really. While the shorts have skillfully covered significant quantities of their positions, they lost hundreds of millions of dollars on these buy backs. This is the very first time they have taken such a beating and those losses are fresh in their minds. I donít think they will put themselves back into danger again by reshorting.

Cook: Any other evidence to substantiate that opinion?

Butler: Yes. I think the silver that has gone into the new ETF was formerly inventory against which silver futures were shorted and traded against on the COMEX for years and years. There are now 73 million ounces in the ETF, or the equivalent of 15,000 contracts. Iím convinced that represents 15,000 contracts that wonít be shorted again by the silver wolf pack, adding to my sense of no big shorting on the next rally

Cook: Could that have been Buffettís silver?

Butler: Sure, indirectly at least. But it wasnít Buffett selling at $13 or $14, according to his own statements. I hope it is Buffettís silver as that would indicate how little silver remains aboveground.

Cook: Whatís the bottom line if the big dealers donít sell short again?

Butler: We go boom on the upside. Thatís why this is the time to load the boat.

Cook: What do you think about the stories claiming tremendous amounts of silver in the form of bags of junk coins, about to flood the market?

Butler: I did read an article about that and received a number of e-mails, and my sense is that itís not something to worry about, but if it develops into a market factor, weíll deal with it and analyze it. But you have over 30 years experience in this very issue. Whatís your take?

Cook: Itís not currently a factor. However, that aside, you appear to have miscalculated on the amount of silver available. Would you agree that all this ETF silver coming out caught you by surprise?

Butler: Yes, it did catch me by surprise. But Iíve always used the amount of one billion ounces in total world bullion equivalent inventory, so this doesnít invalidate that number. And please remember, the silver in the ETF is taken off the market, so in a sense, the more they put in, the more bullish it becomes. This is silver thatís no longer available for industrial consumption.

Cook: Whatís your current take on the silver ETF?

Butler: It has gotten out of the gate faster than almost anyone has expected, in the amount of silver they have purchased. It is the perfect institutional investment vehicle and because there is so much institutional money sloshing around and so little silver, the ETF is going to have a profound impact on the price of silver.

Cook: How profound an impact?

Butler: A few billion dollars is chump change in institutional investment terms. That amount can flow into any worthwhile investment opportunity in a heartbeat. Silver is the best such opportunity, in my opinion. And suddenly, for the first time in history, institutional investors have been given the ability to buy it.

Cook: So what will happen because of the ETF?

Butler: The institutions will continue to invest in the silver ETF, causing silver to be bought and taken off the market. The sponsors of the ETF are either going to run out of silver at current prices, or they are going to sell out the entire 130 million ounces relatively quickly. If they run out of silver at current prices, the price must go up to bring out the required silver. If they sell out the entire 130 million ounces, that will prove there is great demand for silver and the next step must include plans for another silver ETF. We have multiple gold ETFs, so there may more silver ETFs.

Cook: Then what?

Butler: They either bring out another silver ETF, which I think would also sell out, or they admit there isnít enough silver for another ETF and the price of silver explodes as people realize the real situation.

Cook: Silver is a lot higher than it was when we started recommending it. Are you just as bullish today?

Butler: Yes, Iím still advocating people buy silver or buy more silver. People that only own gold and no silver or more gold than silver, should rebalance their holdings.

Cook: Whatís the case for that?

Butler: Look at the amount of silver being bought in the silver ETF and compare it to lack of gold being bought in the ETFs for the past couple of months Ė it tells you there is more demand for silver. That should continue.

Cook: Thatís the reason?

Butler: Thereís a number of reasons. Gold is primarily a monetary commodity, with little industrial usage. Silver is primarily an industrial commodity, with monetary acceptance by many.

Cook: The gold people say that the monetary aspect makes gold better.

Butler: I say no Ė it is the industrial nature of silver that makes silver the better choice.

Cook: Isnít it a matter of preference?

Butler: What have been the best performing metals over the past few years? Industrial metals Ė copper, zinc and aluminum. There can be a shortage because they are consumed. Copper, at the recent peak, was up more than 6 times its low price of a few years ago. Silver is an industrial metal, with a historical monetary kicker. No other metal has that.

Cook: Any other reasons?

Butler: There is more than 200 times more gold than silver in the world in terms of the dollar value of each. One half of one percent of the dollar value of gold is greater than the entire dollar value of silver.

Cook So, whatís your forecast on this strategy?

Butler: Silver should continue to match or outpace gold, as it has for the past few years. But if things play out as I expect, silver will greatly outpace gold over the next few years. If Iím correct, the results could be spectacular. And the kicker is that the gold investor who follows my advice should end up with more gold in the end.

Cook: Howís that?

Butler: Those who switch some of their gold to silver now will be able to someday sell the silver and use those proceeds to buy more gold than they originally sold.

Cook: It sounds good. But weíre not going to beat the drum too hard for switching. We were a gold company for a long time and we like gold. Letís move on.

Butler: Donít be a wimp.

Cook: What do you mean?

Butler: Every time I bring it up, you say letís move on. The whole gold world is afraid to ever suggest that something may perform better than gold. It takes on a religious, cult-like quality. Iím not anti-gold, itís just that I think silver will beat the pants off gold performance-wise going forward and Iím not afraid to say it.

Cook: That sounds a bit extreme.

Butler: Whatís extreme is that I have never seen anyone else, except for my friend Izzy, dare to publicly suggest switching gold to silver. People are not afraid to plagiarize just about everything that I write, but no one else, to my knowledge, has had the courage say switch your gold to silver because youíll make a boatload more money.

Cook: You canít be sure of that. Our clients have bought a lot of gold over the years and itís been going up.

Butler: Thatís great. Yes, gold has done well and I hope it continues to do well. Iím not rooting for gold to go down and Iím not saying it will. Iím saying silver will do much better. If I was an automobile stock analyst and I thought Ford would do better than GM, Iíd find it necessary to tell people to switch from GM to Ford. Iím a commodities analyst who feels silver will do much better than gold. I have to tell people to switch from gold to silver.

Cook: But the fundamentals for gold look great. The dollar, interest rates, inflation, oil and the economy.

Butler Every one of the fundamentals you can list for gold also applies to silver. Itís the other factors that tell the tale.

Cook: Those are?

Butler: Silver is consumed, not hoarded. Silver is an industrial necessity, like oil, copper or zinc, while gold is a luxury item. World governments, the arch enemies of higher gold prices, still hold massive quantities that they can sell to hold down the price. They own just about nothing in silver. Thereís a lot more gold around than silver, especially in dollar terms.

Cook: You have a lot of chutzpah, giving that gold for silver advice.

Butler: I know something that gives me great confidence. I know that only small gold investors can take my advice. Big institutional gold investors canít.

Cook: Why not?

Butler: Thereís not enough silver. The total value of the above ground gold in the world is around $3 trillion. One percent of that is $30 billion. Even if you say there is a world silver inventory of one billion ounces, at $15/ounce that is only $15 billion. One percent of the gold is worth twice as much as all the silver in the world. I think this is an absurd ratio that must adjust in time. The most likely adjustment will come by an upward revaluation of the silver price.

Cook: Sounds bullish.

Butler: Thereís 200 more times gold than silver in terms of dollar value and the great need and absolute requirement for silver in a modern civilization represents the greatest investment opportunity of all time.

Cook: This is what you said at $5.00 an ounce. Can it still be that good?

Butler: Yes, and in some ways itís even better.

Cook: What ways?

Butler: Well, for one thing, the world has come to learn that most metals and minerals were too cheap 3 to 5 years ago. Demand has overtaken production in many commodities and production shows no sign of increasing significantly, for a variety of reasons. Silver is no exception. I think itís better that silver has tripled in price and still doesnít look out of line with other commodities. Itís still in the pack. It has had a stealth move up. It has yet to demonstrate itís unique pricing explosiveness. It will.

Cook: What else?

Butler: This new silver ETF opening the door, for the very first time, to institutional investment is a very big deal and makes things much better for silver going forward. This ETF will greatly accelerate the time for inventory depletion. Throw in the dramatically improved COTs, which are the best theyíve been in 9 months or so and you have all the ingredients for a significant move.

Cook: Care to put a number on it?

Butler: Iíll be surprised if we donít add a pretty quick $5+, but longer term, I still think the price rise will be astounding.

Cook: No question about it, youíve been right about the recent price movement and your explanations of whatís going on behind the scenes have generally proven out.

However, these big dealers you claim are manipulating the market arenít going away. They are going to be trying to make as much as they can going against the small investor. Can the small investor come out?

Butler: Sure he can. In fact, the small investor, the buy and hold guy, has done better than the dealers in the runup over the past 9-10 months. The dealers have succeeded in covering a large chunk of their shorts, but it cost them an arm and a leg. It is because the dealers took such a beating on the shorts they just covered, that I donít think they want to go short anytime soon. That could really set the price free.

Cook: Any final words?

Butler: This is the time and these are the circumstances to load the boat.

-- Posted 24 May, 2006 | |

This article is brought to you in part by Investment Rarities Inc.

Last Three Articles by Jim Cook & Ted Butler

Warnings Ignored
4 September, 2009

The Voice Of The People
25 August, 2009

Walking the Walk
20 August, 2009

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