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Gold is best way to play commodities boom now, James Turk says
By Ted Butler
InvestmentRarities.com
Wednesday, March 16, 2005
The most recent Commitment of Traders Report indicated continued
deterioration, with increased tech fund and speculative buying and
dealer short selling in gold and silver. Extrapolating from the
Tuesday, March 9, cutoff date, I would estimate that the dealer net
short position in COMEX gold futures has grown by some 100,000
contracts from the lows as the price rallied by more than $35. In
silver, the dealers have increased their net short position by more
than 20,000 contracts as the price rose more than $1.25 from the
early January lows.
While these increases in the dealers' net short position still leave
room for more short selling and higher prices, the odds have also
greatly increased for a short-term selloff of more than
insignificant proportions. Accordingly, while core long-term
positions in silver should be held, highly leveraged speculative
positions should be assessed. Preparations should be considered for
aggressive buying if the brain-dead tech funds liquidate at much
lower prices.
I don't like to speak out of both sides of my mouth, but I am unsure
where prices are now heading in the near term. Silver could explode
at any moment, given the spectacular fundamentals, even as a dealer
engineered selloff would not shock me. But there is a larger issue
here, which I hope is clear to all market participants and observers.
The larger issue is this: While there are any number of legitimate
reasons, rooted in basic supply/demand considerations, to explain
why silver should explode in price, there is one, and only one,
reason why it would go down. That reason, of course, is dealer
engineering of the price. When the dealers decide that they want the
price to go down, it goes down. End of story. They do this by
collusively pulling their bids as the tech funds move to sell large
positions. How this is tolerated by free-market advocates,
regulators, and, particularly, by the silver producers is a mystery
to me.
In last week's article, "The Coming Silver Accident," I tried to
show how short positions are open transactions that must be
legitimately closed out in one of two ways -- by delivering that
which was sold short or by repurchasing the short sale. I argued
that silver has the largest short position of any item ever, and its
short position is many times larger than the real silver in the
world that could be delivered. The only possible remaining way to
resolve the open short position is by repurchase by the short
sellers. To my knowledge, no one can refute this.
The very existence of such an uneconomically large short position
is, in and of itself, criminal in nature. If someone or some
organized group sells short and continues to sell short in
quantities greater than what actually exists, and they know that,
then that party is acting with the criminal intent to artificially
depress prices. There is no legitimate explanation for why someone
would persist in such behavior. Just because the dealers make a
profit with this criminal intent does not legitimize it.
If it's not possible to deliver and you are down to buying back
as your only option to close out a transaction, you wouldn't sell
more. You would do it only to control the price. That is not
legitimate. It does not matter that there exists a willing
counterparty, in the tech funds, who will allow you to reduce (but
not eliminate) your illegitimate short position from time to time.
That just facilitates the manipulation and sanctions the criminal
intent.
I believe that there is criminal intent behind the big dealer short
selling in silver. There can be no other logical explanation. While
I am sure the dealers and others play price games in many markets,
the significance here is that only in silver has the market rigging
reached the level where no one can refute that the short position is
greater than what exists or could be produced in a year.
The remarkable aspect to this crime in progress is that the
regulators not only know all about it but also know the identity of
the dealers who are acting with criminal intent. While not all of
them may be necessarily involved, it is impossible that some of the
four or eight largest silver short sellers on the COMEX are not
acting with criminal intent. That the CFTC and the COMEX process
weekly reports from obvious manipulators and fail to act against
them highlights the worst of regulatory behavior. Hopefully, there
will be a day of judgment for regulators who refuse to regulate. But
it would be a mistake to assume that all law enforcement officials
are asleep at the switch.
In a surprise to most, it was revealed this week that the long-time
head and guiding force of AIG, Maurice Greenberg, was given an
unceremonious boot. After all, AIG is the leading factor in the
insurance world and Greenberg was considered the most powerful
individual in that world. I must say that it was not a surprise to
me. It was also not a surprise to me that the attorney general of
New York, Eliot Spitzer, was credited with Greenberg's departure,
as well as the previous dumping of Jeffrey Greenberg (Maurice's son)
from the top job at Marsh & McLennan. Here's the headline from the
business section of today's New York Times: "In Clash of Titans,
Chief of AIG Met His Match."
Regular readers know that I had long considered AIG to be the
ringleader in the silver manipulation. That's why I had petitioned
Spitzer to intercede against AIG. Because we have not read anything
about AIG's silver involvement, some have accused Spitzer of not
doing much about the silver manipulation.
It's my opinion and my opinion only that Spitzer privately
intervened and caused AIG to retreat from the silver market or
sharply curtail its activities. Spitzer could snap AIG or any
company involved in wrongdoing like a matchstick, if he chose to.
But he is more interested in reforming. It does not serve the
greater good to put major U.S. corporations out of business.
The problem in silver is that there is no easy solution except save
sharply higher prices. When the silver manipulation breaks, it will
be disorderly and disruptive. It will be a matter of great upheaval.
No official wants to be responsible for that.
But that is not to say that Spitzer hasn't done a great deal behind
the silver scenes. Not all his activities must be in full view. And
I think he will do more.
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Ted Butler silver commentary archive:
http://www.investmentrarities.com/
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