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Forbes quotes GATA Chairman Murphy at length on gold price suppression scheme
By Theodore Butler
InvestmentRarities.com
Tuesday, October 11, 2005
The most recent commitment of traders (COT) report indicated
continued tech fund buying/dealer short selling in gold and silver.
In gold, especially when factoring in the trading from the Tuesday
cutoff, the tech funds now hold a record long position, on both a
net and gross basis. The dealers, likewise, hold a record net and
gross short position in gold. While these respective positions could
grow larger with higher prices, in poker terms the pot is full. Soon
we will get the resolution.
In silver, based upon the current COT report and subsequent trading
from the cutoff date, the dealers appear to have sold short an
additional 40,000 net contracts (200 million ounces) on the price
rally over the past month or so. By my calculations, the dealer net
short futures position has increased to roughly 375 million ounces,
including the extrapolation from the cutoff date. While not at a
record like gold, the silver COTs are very full, although they could
get fuller at higher prices. The bottom line is that we are close to
a "do or die" extreme juncture in the market, where volatility and
risk are high. One side or the other, tech funds or dealers, will
win or lose. This is not a contest in which other market
participants, including small traders, play much of a role in the
determination of the outcome.
Can silver move sharply higher from here, in spite of negative COT
readings?
Of course it can.
Can we sell down through the moving averages easily? Yes.
Is that doubletalk? Maybe, but I would be leery of anyone who
claimed to know how the short term will play out. I do think I know
that on a short-term basis, while profit potential may be high in
silver (as it always is), risk is also high.
While past extremes in gold and silver have always eventually
resulted in the tech funds running, it is always possible for the
dealers to be overrun. No one knows how it will play out, although
many have already declared the dealers the losers. This is
premature, as the game is very much in play, with both sides
increasing their bets. Open unrealized profits and losses are very
much different than closed-out and realized profits and losses.
We know the tech funds have held enormous open profits in the past
only to lose those profits on selloffs below the moving averages. It
would be instructive to determine beforehand just what would
constitute a dealer loss.
The simplest definition would include the tech funds closing out
their long gold and silver positions at big profits to them and big
losses to the dealers. While that has never happened in gold and
silver, it could happen. But until it does happen, we won't know.
Let's declare who wins and count the money when the dealing's done
and the positions are closed out.
Of course, this COT analysis is short term in nature. As such it is
necessarily of speculative concern, as opposed to long-term
investment, which is the way the vast majority of investors should
handle their money. Let me keep it simple. Long term, silver goes
much higher based upon the law of supply and demand. Short-term, who
knows? But if we do experience a significant short-term selloff, I'd
like to make two points in advance.
First, it should provide a low-risk buy point in silver. Second, we
will have come down for one reason only, tech fund selling.
This week silver received an unexpected endorsement from an unlikely
quarter the Silver Users Association (SUA). For those of you who
may be unfamiliar with this organization, here's their Internet site:
http://www.silverusersassociation.org/index.shtml
I have previously written about the SUA in unflattering terms, in an
article four years ago, "Silver Users, Silver Abusers":
http://www.investmentrarities.com/03-26-01.html
I don't want to go off on a tangent, but I could never understand
how the SUA was allowed to exist, since its main purpose seemed to
be to keep its members supplied with cheap silver and since they
were the only commodity consumer group in existence. If a group of
commodity producers banded together for the purpose of artificially
increasing the price of their commodity, that would be clearly
illegal under U.S. law. How a group of commodity consumers could get
away with the reverse goal is a mystery to me.
Additionally, the SUA was the main driver behind the U.S.
government's disposing of its massive silver stockpile over the past
60 years. This was the main reason the SUA was formed. In the
interest of full disclosure, I did complain to the Justice
Department's Anti-Trust Division about the SUA 15 years ago. Suffice
it to say I'm no friend of the SUA.
That's why I was surprised when a received a number of e-mails from
friends and readers this week about the SUA. First, I learned that
the SUA had actually published one of my articles in its April 2005
newsletter. No, it wasn't the silver abusers article but one on
digital cameras. I'm used to seeing my articles published by others,
but I never expected the SUA to do so. I'd be lying if I said I
wasn't flattered.
More importantly, it turned out that the SUA had written articles in
its two most recent newsletters, dated July and September 2005, on
the pending silver ETF from Barclays. One reader wrote to me that
the position of the SUA on the silver ETF fully endorsed my take on
the ETF, which I wrote about in June:
http://www.investmentrarities.com/06-28-05.html
While I would concur that the SUA agreed with my assessment, of much
greater significance is that the SUA has fully endorsed silver as an
investment. As much as I loathe what the SUA stands for and has done
to the silver market, I will acknowledge that it knows as much about
silver as could be known. For it to tell you that real silver is a
great investment is powerful beyond any words I could ever write.
They're even telling you to buy allocated silver, the only kind of
stored silver that I preach about.
No, the SUA is not suddenly in the investment advisory business and
is not intentionally promoting silver. That would be preposterous.
But if you take the time to read why they are opposed to the
Barclays silver ETF and apply your common sense, you will be able to
reach no other reasonable conclusion. Here are some excerpts from
their position on the ETF.
For the full statement, go here:
http://www.silverusersassociation.org/news/wash_rpt_0509.shtml
The excerpts:
"Background on ETF.
"An ETF is an Exchange Traded Fund, created under the Investment
Company Act of 1940. They are index-based products, which hold a
portfolio of securities that is intended to provide investment
results that, before fees and expenses, generally correspond to the
price and yield performance of the underlying benchmark index. In
the case of a Silver ETF, the index would track the silver price and
be backed by physically vaulted silver. Gold ETFs gained popularity
in the recent commodity bull markets as investors were attracted to
an alternate form of gold investment other than mining shares,
options, futures, and physical. Many are interested in gold from
a 'buy and hold' perspective. Each unit that is bought on the gold
ETF has resulted in physical gold metal being purchased on the open
market and stored in a vault. In total, these gold ETF's have
contributed to 250 tons of gold being purchased in the open market,
approximately $3.4 billion dollars.
"Impact of Silver ETF.
"Fortunately we do not have to look back very far to see the impact
a significant amount of allocated silver would have on the market.
It was 1998 when Warren Buffet purchased over 100 million ounces of
physical silver and the spot price rallied over $3 dollars and one
month lease rates soared over 30%. ...
"As it is, silver can be an illiquid market because there are few
central banks which own silver. Silver is inexpensive in terms of
commodities, and its volatility is typically 2-3 times that of gold.
"These are both reasons investors are drawn to the market. A silver
ETF would only exaggerate silver's illiquidity given the sheer
volume of physical silver needed to be shipped and stored. While a
silver ETF might initially provide price benefits for producers, we
believe it would disrupt the market in the short term and may harm
the market in the long term.
"SUA position.
"The Silver Users Association opposes the creation of a silver ETF
because of the concerns that doing so will require the holding of
physical silver in allocated accounts, thus removing large amounts
of silver from the market. By doing so, the ETF most likely would
cause a shortage of silver in the marketplace. ..."
I urge you to read the entire article. The SUA writes in very clear
and blunt language, just as I tried to do in my ETF article. You
decide if the SUA agrees with me. They are telling you there is not
enough real silver in the world to fund a silver ETF, just as I did.
They are telling you that the silver ETF will create a shortage and
send the price soaring, just as I did. They are comparing the impact
of the silver ETF to Warren Buffett's silver purchase in 1998, just
as I did. They are telling you that there is plenty of gold for any
number of gold ETFs but not enough for even one measly silver ETF,
just as I did and further confirming my contention that silver is
more rare than gold. They are confirming that there is little silver
left in the central banks. They are confirming that allocated (with
serial numbers and specific bar weights) silver is the type of
silver that counts, just as I've always done. They are telling you
that silver is cheap and will move much more than gold.
Is there an echo in here?
Please understand me: It's not just that they wrote exactly what I
wrote. It has to do with who I am and who they are. I'm an analyst
who is bullish on silver and interested in ending the silver
manipulation and seeing as many regular people as possible take
advantage of a great investment. You would expect me to say bullish
things about silver.
But what about the Silver Users Association? What would you expect
to hear from them?
I'll tell you what I have come to expect from following them for 20
years. Until this ETF article, I have never heard them say anything
bullish about silver. It was always "there's plenty of silver, the
price should go down, it will always be a poor investment, yada,
yada, yada." Never have they issued a bullish word about silver.
That's what is so significant about their ETF article; it is nothing
but bullish. Not enough silver for an ETF, silver's inexpensive, the
ETF will cause a shortage, it moves faster than gold, the ETF will
benefit producers, the ETF will have the same impact that Warren
Buffett did.
All I can say is: Huh?
This SUA article is serious stuff. It is unprecedented. There was
only one reason they came out against this ETF as forcefully as they
have: They knew this silver ETF could blow the silver market sky-
high. The SUA had to do whatever it took to kill it, and as I wrote
previously, there's no other way to spin it. If the silver ETF is
killed, it will be for the irrefutable fact that there is not enough
real silver in the world to fund it anywhere near current prices. It
should be simple for you to recognize that the SUA was in such a
bind that it forced this open and blunt approach.
And you can rest assured that writing articles in their newsletter
is only the tip of the iceberg as far as their real, behind-the-
scenes effort to derail the silver ETF. The SUA and their members
are the masters of backroom lobbying and influence peddling. How
else do you think they succeeded in causing the disposal of billions
of ounces of government silver over half a century, right in front
of our eyes? The army of well-paid lawyers and lobbyists from
Eastman Kodak, Dupont, Dow Chemical, Engelhard, and Tiffany have
been petitioning and influencing the SEC to kill the ETF. Against
this concerted and well-organized effort against the silver ETF, I'm
not aware of any forceful attempt to get it approved.
While I can be wrong, and I do hope I am, the effort to kill the ETF
should prevail. It won't be a surprise, because there never was
enough real silver to back it. The surprise is to see the SUA come
out so publicly against it, and in doing so, prove to the world just
how little silver is left the world. It would be hard to ask for
clearer proof. In fact, we don't even have to wait for the final SEC
decision to deny the ETF in order to confirm my contention that
there is not enough silver, at near current prices, to back it. The
SUA just did that.
The super-good news, of course, is that you can do something about
it. You don't need to wait for a silver ETF, which may never come
into existence, to buy real silver. You can do it on your own. Just
make sure, if you are buying silver that will not be in your
personal possession, that you buy the right kind of stored silver.
That means no unallocated, pool accounts or leveraged deals, if your
intent is to own real silver. Those kinds of silver are the type the
SUA would prefer to see you buy. According to them, the only type of
silver that really matters is allocated silver. Please listen to
them.
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