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By: Theodore Butler

-- Posted 9 February, 2009 | | Discuss This Article - Comments: Source:

(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.)

New data from the CFTC, provides the clearest proof to date of a manipulation in gold, thus vindicating the long-held position of GATA (the Gold Anti-Trust Action Committee). It is my hope and expectation that GATA, run by Bill Murphy and Chris Powell (Ed Steer, a director, is a close friend), will take the evidence and do everything in their power to ram it down the manipulatorsí throats and end the gold and silver manipulation.

I would like to offer further evidence of manipulation with the intent of convincing the staff of the Enforcement Division of the CFTC of the continuing crime in progress. In somewhat of a twist, I would call on all gold proponents and investors to study this evidence, as it pertains mainly to gold futures trading on the COMEX. The evidence is found in source data published by the CFTC, in the form of their weekly Commitment of Traders (COT) and monthly Bank Participation (BP) Reports.

The Bank Participation Report for positions as of February 3, indicates that three or fewer U.S. banks hold a record short position in COMEX gold futures of 111,190 contracts (over 11 million oz). an increase of 28,690 contracts from the January report. The previous record short position by U.S. banks was 86,398 contracts in the August Bank Participation Report.

In other words, the current short position held by two or three U.S. banks is almost 30% greater than the previous record. After the previous record August short position was reported, gold prices fell almost $200 over the next two months. Will that happen again? I donít know. What I do know is that if gold prices do suffer a sharp decline, it will only be because this manipulation by two or three U.S. banks was successful.

Allow me to put the concentrated short positions in gold and silver into perspective. As the February BP report indicates, one or two U.S. banks held a 29% share of the COMEX silver market and two or three U.S banks held a 32.1% share of COMEX gold futures. Of the 73 markets covered in the report, no other market has a U.S. bank percentage even close to silver and gold, save the smallest market listed, 90-day EuroYen Tibor (Although I have over 35 years of futures experience, I donít know, nor do I wish to know, what that is).

Please keep in mind that the Hunt Brothers and all their reported associates had a futures market position (COMEX and CBOT combined) that was under a 10% share of the total silver futures contracts outstanding at that time and were charged with manipulation. What arenít short positions three times as large also manipulative?

As large as the current gold and silver percentages of the market held by one, two or three U.S. banks may be, those percentages are grossly understated because spread positions are included in open interest totals. Remove all spread positions (non-commercial and commercial) and the share of the market held by one or two U.S. banks in silver rises to 41.5%, and not 29%. In gold, the share of the market held by two or three US banks is really 45%, not 32.1%. How could one or two traders holding 41.5% of any market, or two or three traders holding 45% of any market not be manipulative?

When the market share of the one, or two, or three U.S. banks in silver and gold are compared to the total share of all commercial traders, the result is truly shocking. In silver, the one or two U.S. banks account for more than 81.6% of the total net short position of all commercial traders. In gold the three or fewer U.S. banks account for more than 62.3% of all commercial shorts. With such a lionís share, these big banks completely dominate and control the gold and silver markets.

Lastly, by comparing corresponding COT and BP report data from January 6 to February 3, I can make the following statement. The entire net increase in the commercial short position in silver and gold (2,500 contracts in silver and 28,000 contracts in gold) basically came as a result of new shorting by the big U.S. banks. In other words, neither the 5 through 8 largest traders, nor the 9+ commercial traders (the raptors) changed their positions much during that period. Almost all the selling was by the big U.S. banks in both silver and gold. Ask yourself this - what would the price of gold or silver have been if these big U.S. banks hadnít sold short in such quantities? How can that not be manipulation?

It appears obvious that the CFTC began its current silver investigation as a result of revelations in my article "The Smoking Gun" and because many hundreds of you wrote in to the Commission. Without that public participation, there would have been no investigation. But one thing always puzzled me, namely, why did that investigation appear to center on silver? What about gold? After all, in my article, I highlighted the extreme concentration on the short side of COMEX silver and gold futures and asked how it was possible that such concentrations could not be considered manipulative in both markets. Make no mistake, the silver market is the most manipulated market in the world. But gold is close behind.

For the record, I am neither a gold proponent or antagonist. I am a gold agnostic. I like to think that makes me more objective than most. I understand why people buy and hold gold, and I respect their reasoning. I study the facts concerning gold closely. If there were no such substance and story as silver, I would imagine I would be a gold proponent. Certainly, higher gold prices do not harm silver. I know there are times when gold is positioned to rise and fall and I try to analyze appropriately. While I profess to a neutrality on gold, I donít profess to a neutrality on manipulation. The latest data from the CFTC confirm a manipulation in gold. Gold people should not tolerate it. Since there must be at least a hundred times more people interested in gold than are interested in silver, their collective voice could be forceful.

The evidence in the February Bank Participation report is clear - two or three U.S. banks held a record net short position equal to 15% of total world annual production of gold, a staggering and unprecedented number, exceeded only by the absurd percentage in silver (currently 20%). In every reasonable measurement of market share, two or three U.S. banks are completely dominating and controlling the gold market. All according to government data.

Who gave these U.S. banks the right to manipulate gold prices? The U.S. Treasury Department? Why are banks who are receiving taxpayer bailout funds even shorting gold and silver in the first place, especially at a time when so few other big entities chose not to? Shouldnít they be looking to make loans to real people and businesses and leave market speculation to others? Are there no honest market regulators left? I sure hope gold people get to the bottom of this and give these crooks what they deserve.


Law & Order

I want to thank all who wrote to me about the recent testimony of Harry Markopolos before a congressional committee regarding his prior warnings to the SEC about Bernard Madoff. All compared this episode to my two-decades long campaign to get the CFTC to end the silver manipulation. If you havenít heard or read Mr. Markopolosís testimony, you should do so. Itís long, but itís very instructive

In his statement, Mr. Markopolos highlights the SECís ineptness and arrogance, and comes up with a no-nonsense solution - fire and replace the entire senior staff who should have caught Madoff years earlier and revamp the structure for uncovering fraud. As far as the comparison to the CFTC, let me just note that it is widely acknowledged that the SEC is considered much more competent and alert than the CFTC. So, if the SEC could bungle and miss a major fraud for more than a decade, despite repeated warnings, is it not possible that a much smaller staffed agency could do the very same thing?

There was a sharp contrast between the television coverage of Mr. Markopolosís testimony and what I usually watch on TV for entertainment. Most of my leisure television viewing time involves watching reruns of the show "Law & Order." Itís been that way for many years. I watch the show for much the same reason I imagine children watch Disney cartoons, namely, for fantasy escape purposes. Where Disney portrays heroic and kindly animal cartoon characters, "Law & Order" portrays dedicated public servants, police and prosecutors alike, who risk their lives and devote all their time to protecting society and upholding the law.

The show allows me to balance the reality I face each day with a nightly escape of what should be. There is no SEC ignoring credible warnings, nor a CFTC dismissing hundreds of bona fide complaints on any of the nightly reruns. Instead, the public servants on TV leave no stone unturned to get to the truth and let justice and the law prevail. Oftentimes, the TV public servants cross the line and are too aggressive in their pursuit of the bad guys and are reprimanded, with the resultant message that the rule of law must be observed at all times. The irony is that the fictional characters on TV have sworn to the same oath of office as have their real-life counterparts at the CFTC and other government agencies.

I accept that my TV viewing is fantasy and escape, as much as I accept that the CFTC is incompetent, uncaring or worse. The only issue is what to do about it? Live in a world where the law is upheld only on television, or bring pressure in the real world where it is not? For me, itís an easy choice. I know I must do what I can to terminate the silver manipulation. Thatís the primary purpose why I write publicly. Specifically, my role has evolved into presenting credible evidence of the manipulation and then trying to persuade you to pressure public officials to terminate the manipulation.

On a personal note, Iíll be speaking at the Phoenix Silver Summit on February 21

-- Posted 9 February, 2009 | | Discuss This Article - Comments:

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

Last Three Articles by Theodore Butler

Warnings Ignored
4 September, 2009

The Voice Of The People
25 August, 2009

Walking the Walk
20 August, 2009

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