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AP: Gold, silver shares up on inflation fears
By James Cook
InvestmentRarities.com
Tuesday, November 15, 2005
The November 8 edition of The Wall Street Journal carried an article
about the Silver Users Association's attempt to block the new silver
exchange-traded fund proposed by Barclays. They report the same
argument that Ted Butler explained in previous essays. Butler wrote
that there wasn't enough silver available for the fund and any
attempt to procure it would drive up the price. In fact, it seems
clear to me that Butler's essays actually initiated the current
attention on this issue.
Here's excerpts from the Wall Street Journal article:
"A group representing companies that use silver for industrial
purposes is seeking to block the launch of an exchange-traded fund
tied to the precious metal, leading some observers to question
whether federal regulators will allow the fund to go forward.
"The Silver Users Association, a lobbying group interested in
keeping an orderly silver market, has asked the Securities and
Exchange Commission to deny an ETF currently in registration from
investment manager Barclays Global Investors. Unlike traditional
mutual funds, exchange-traded funds trade all day on exchanges like
stocks.
"The organization says a silver ETF would create a price squeeze in
the metal because the fund would have to buy a large amount of
silver to back the fund's shares before the launch. ... 'A silver
ETF would only exaggerate silver's illiquidity given the sheer
volume of physical silver needed to be shipped and stored,' the
group said in its letter to the SEC. ...
"The SUA says part of its mission is to keep silver prices low and
keep the metal readily available for users. The association's
members include jeweler Tiffany & Co., photographic-equipment maker
Eastman Kodak Co. and chemical giants Dow Chemical Co. and DuPont
Co."
I've asked Ted Butler to explain what all this means to those who
own silver or plan to buy it. As always, these are his thoughts and
not necessarily those of Investment Rarities Inc.
* * *
Common Sense and the Silver Users Association
By Theodore Butler
When I first wrote about the proposed silver ETF back in June, I had
no idea that the Silver Users Association (SUA) would confirm my
take on the matter.
My take, of course, was that the silver ETF was going to be good for
silver, regardless of whether it actually came into being or not. If
it came, great, as that would provide big demand for scarce actual
silver. If it didn't come, that would also be great, as that would
prove to all that there was not enough real silver available for
sizable investment.
In the event that the SEC rejected approval for the silver ETF, I
had anticipated that rejection would be accompanied by a "spin"
designed to obscure the real reason -- namely, not enough real
silver. I thought people would have to think to see through the spin
to get to the real reason for rejection. I had never anticipated
that my old nemesis, the SUA, would make everything so clear and
easy to understand.
Thanks to the SUA, we have entered into the "No-Spin Zone."
Please remember that it has yet to be decided if the silver ETF will
be approved or rejected. But that determination is suddenly of
secondary concern. What is of primary concern is the actual debate
and publicity that this issue has garnered. Out of nowhere, the main
topic of discussion is the Silver Users Association and the silver
ETF. I have seen more written in the past few weeks on this issue
than any single silver issue since Warren Buffett's purchase eight
years ago. It is on everyone's mind in the silver world.
How the SUA came to be the center of attention is remarkable and
somewhat an out-of-body personal experience for me. I'd like to
explain why.
Long before I started writing for Investment Rarities and even
before I started writing on the Internet, I conducted a one-man
campaign against the SUA, starting about 20 years ago. I did
everything I could think of to expose the SUA for the corrupt
organization I believe it is. I mean everything.
I got the U.S. Bureau of Mines to stop using SUA-sponsored silver
consumption data in official U.S. statistics. I urged the CEOs of
the leading members of the SUA at the time, including Eastman Kodak,
DuPont, and 3M, to stop their collusive price influence on the
silver market. I lobbied the mining companies to stand up to the
SUA. I contacted every media source I could think of to expose the
SUA's illegal influence on the silver market.
Looking back on my letters, I didn't just petition the Justice
Department to put the SUA out of business; I actually harangued them
with numerous letters and phone calls. I contacted more elected and
regulatory officials than I can count.
I tried my best to show how, if it were illegal for big producers to
collude to raise prices, it was illegal for big industrial consumers
to collude to lower prices. But in spite of an effort that I don't
think I could duplicate at this stage in my life, I did not succeed
in exposing the SUA to a widespread audience.
That's what is so remarkable about the recent turn of events. I
couldn't expose the SUA, but it turned around and exposed itself. If
it hadn't announced its opposition to the proposed silver ETF, very
few in the silver world would have even been aware of the SUA.
They shot themselves in the foot.
Of course I feel like I did help them hold the gun at least, as I'm
convinced that my essay in June on the ETF was what prompted the SUA
to take its extraordinary public stance against the ETF in the first
place.
What is so special about this whole SUA/ETF story is that the cat is
out of the bag in a number of ways.
First, the SUA has exposed itself to the world for what it really
is -- an organization whose sole purpose is to depress the price of
silver any way it can. If that's not illegal, I don't know what is.
Second, it should be expected that the members of the SUA would
follow their own advice and seek to secure real silver before the
shortage they expect actually hits.
Third, the SUA has succeeded in uniting the silver world against a
common enemy -- the SUA itself. I have yet to hear anyone praise the
SUA for its stance against the silver ETF.
But most important is the message it is sending to you, the silver
investor. This is your wake-up call to complete your silver
purchasing. The SUA has confirmed everything I have ever written
about in silver. The SUA didn't intend to do that, but there was no
other way. You can't objectively analyze the silver market and not
come to the conclusion that the market must explode due to an
inevitable shortage.
All this fuss over one proposed silver ETF should make you think.
Several gold ETFs are apparently no problem. But one silver ETF is a
big problem.
There was no open and organized opposition to the gold ETFs, and
their creation and active trading have led to no shortage in gold.
The open and organized opposition by the SUA to the silver ETF
confirms which commodity has the most critical supply/demand
situation. When someone goes out of his way to prevent others from
buying what he wants to buy in your place, you can be sure he is not
doing so for your benefit.
Whether the silver shortage becomes apparent due to the ETF, as the
SUA seeks to prevent, or whether the shortage becomes apparent later
is not important. What is important is that the silver shortage will
soon be upon us. And when the shortage is obvious to all, say
goodbye to the current giveaway prices.
What remains to be seen is whether the sudden attention on the SUA
results in my long-held dream and goal, the discrediting and demise
of this corrupt organization. There is no place in a legal and free-
market environment for collusion among the largest industrial
consumers to influence price.
I am hopeful that this rare spotlight on the SUA causes people to
wake up and recognize the nature of these manipulators. The real
issue is not whether the silver ETF gets approved but rather
wheather the SUA is allowed to continue to exist.
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