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Here's an update from my last piece, "No Way Out", in which I postulated
that the leasing scam in gold and silver would soon come apart and
we would have a market event similar to what occurred in the stock
market in Oct 1987, which was triggered by "portfolio insurance".
Less than two weeks after my article appeared, the gold market was
jolted with news that a consortium of European central banks announced
that they would cap further gold sales and restrict lending of the
metal. Whether you would agree that the explosion in gold prices
from the day of the last Bank of England auction qualifies as a
market event, the roughly 25% move in gold eerily parallels the
25% move that portfolio insurance caused in the stock market. But
that's not the important point - which is that the initial jolt
out of the box for gold represents a beginning, rather than the
end that portfolio insurance represented. OK, now what?
Before trying to figure what's ahead, I'd like to speculate on
what that CB announcement was really all about. If you look at the
amounts quoted to be sold and the impromptu unprecedented cooperation
of the 15 entities, you can't help but be suspicious of the real
motive for the announcement. Of the 2,000 tons pledged to be sold
over 5 years, the vast majority was the 1300 ton planned Swiss sale
and the 400 tons scheduled to be sold by England. Informed opinion
doubts the Swiss sale will ever take place and public opinion may
yet cause England to terminated further auctions. So what was the
announcement about? It was about leasing - the prime component in
the price of gold and silver. More specifically, it was about the
unwillingness or inability of the CBs to throw more good metal down
the leasing rat hole. This is truly a momentous development. What
it was also about was the CBs refusal to believe my contention that
there was no way out - only, as I claim, disorderly market conditions
and massive collective default. This prospect is unpalatable to
the CBs who desire a world of stability and status quo. So, they
did what they do best - they tried and are trying to manage an unmanageable
situation. Rather than come out and admit their private feelings
about the true sad state that leasing has created in the gold and
silver markets, they have chosen to pretend that the situation is
not that extreme. Rather than admit that the metal supply left to
lease is gone, they tried to put themselves ahead of the market
event by making it appear it was their choice to terminate leasing.
I don't blame them; it's their job.
But it's not your job to accept anything someone says (including
me), when the facts and anecdotal evidence point towards more plausible
explanations. My bet is that the CBs are going to curtail lending
because they are at the bottom of the barrel for new lending supplies.
If that's the case, you can take this to the bank - with no new
leasing supplies, it is game over. That the leasing con may be ending
here should not be a surprise, the real surprise is how it's lasted
as long as it has.
Let's take a minute and view the current landscape after the opening
volley of the post-lease environment. In gold, we have endless rumors
of hedge funds and other shorts in extreme difficulty. Trading is
more chaotic and disorderly in gold than at any other time in history.
The rapidity of the increase in gold in the days since the announcement
has left the natural short sellers in the mining and professional
investment community dazed and wounded - some surely mortally. Because
this selling of years of production short by miners was not true
hedging, as I have contended, but a fatal manipulative experiment
- we are experiencing a phenomenon never witnessed in the world
before. That phenomenon is the collective mourning and sadness in
the mining community over the price rise. Producers not ecstatic
over a price rise of their product? Maybe the non-hedgers are jumping
for joy, but there is no joy in the short selling miner world. This
should be proof positive of the distortions that leasing/forward
sales have created. It should show you that leasing is rotten to
the core.
But I'm not writing this piece to recap the past week's events.
It's time to look forward. There should be no doubt (except by the
sleeping watchdogs at the CFTC) that gold had been kept down by
short selling. Just the smallest amount of pressure on the shorts
has resulted in outsized gains. This is just the start. But no matter
how explosive the action gets in gold (and I think it will come
to take your breath away) - this will pale in comparison to the
mega atomic explosion we will soon witness in silver. What we are
about to see in silver will dominate market history and folklore
that will be referenced for decades to come. That there is still
time to take advantage of it is the unintended and unavoidable consequence
of this century's greatest manipulation. But the time is very short
until the truth becomes obvious in silver. And as quickly as the
$260 per ounce opportunity in gold vanished, the world will soon
know in a flash that the 5 or 6 dollar silver available for decades
will never exist again. I say this clearly - it is now or never
for you to complete your silver purchase plans.
How can I be so sure? Because of
what is happening in gold. Because it has to happen - there is no
other way. Think of how crazy this lease business has become. Here
we are at $300 gold, and the gold world is coming apart at the seams.
What would happen at 400 or 600 or 800? I'll tell you what happens,
as I've been telling you in every single article I've ever written
- massive default. But silver - oh silver - that scares even me.
It's almost too extreme to analyze in a non-emotional manner. I
find my mind shuts off and wanders when I let my natural logical
thought patterns flow - much like a computer crashes when there
are too many applications running. I find myself (me - the bull
of all bulls) pulling back from the certain ending I see dead ahead,
because it is extreme beyond experience. But when I see the trouble
that $300 gold has caused, I know it can't be long before silver
starts the nuclear fission price process.
That's because the silver price has
been manipulated for way too long by leasing and the excessive short
selling of paper contracts that have no backing whatsoever. In fact,
the only thing holding silver back from its date with destiny is
massive new short selling by entities that have not a prayer of
fulfilling their soon to be called on demands for actual delivery.
Just this week on the COMEX, on the day silver rose 40 cents, 80
million more paper ounces were sold short (futures and call options),
bringing the total short position on the COMEX to over 700 million
ounces. This is insane and criminal. How the CFTC and the COMEX
can allow new gasoline to be thrown on the silver fire, when it's
obvious to all that gold is already ablaze, will constitute great
debate in the coming great silver lawsuits in the new century. Ask
yourself this - who in their right mind would sell massive amounts
of silver that is not owned in this environment? There is only one
plausible answer to that question - someone that had no choice.
Only someone who would face certain ruin if he didn't sell. Let
me be as clear as I can be - the short sellers of silver this week
were the NY banks and financial institutions who were already short.
They had to sell more to protect their existing paper shorts. If
silver were a free market, the 80 million new ounces sold this week
should have been sold for 7 or 10 or 12 dollars per ounce, because
that is what the buyers would have paid if they had to. The sellers
in silver this week didn't do what free market sellers do, namely,
they didn't try to get the best price. They did something else -
they capped the market. It is the surest sign of manipulation and
criminal activity. But the manipulators have little choice - it's
either sell still more millions of ounces of silver they know they
can't come up with in ten lifetimes, or watch the worldwide short
silver position of billions of ounces get sucked into the gold fire.
It is this unbridled desperation and manipulation to the last possible
moment that is creating this last chance to nail down silver purchases
by you.
There is nothing on earth that can
stop the silver eruption once it begins. The only hope the trapped
commercial shorts have is to delay the start - for a day, a week,
or a month. The only thing that can delay the inevitable is perversely,
more shorting. That the CFTC and COMEX management is allowing this
to happen brings great shame to those institutions. Let me offer
one step to them that should be taken immediately. An order should
be issued now that new sellers must document ownership of actual
silver. With a current short position above any possible amount
available in the real world, allowing new short selling that is
only intended to suppress the price is outrageous. While some might
claim my suggestion is self-serving, let me answer this way - how
does allowing more naked selling help the situation. The only cure
for a manipulation is to end it. The problem of default is not created
on the day the default becomes visible - it was created on the day
the non-performing short sale took place. That's why the CFTC and
COMEX must act now. We don't need them to tell us the shorts can't
deliver - we need them to act now and stop new manipulative short
selling.
Sure, these NY banks and financial
companies are the masters of the universe. But they made the wrong
bet. Gold and silver can't be controlled forever. Their new shorts
in silver may buy them some time - they could force technical liquidation
and drive the price of silver lower temporarily - maybe even down
to 5 or below. But so what? Just make sure your purchases will not
be shaken from you in that event. Don't let them trick you with
another one of their engineered sell-offs.
Gold is a multi-stage rocket that
has maybe used up its first stage - there's a lot more to be ignited
on this journey. Silver is different. Silver is not any rocket.
Silver is the Saturn V used in the Apollo Mission to the moon. The
biggest, baddest, most awesomely powerful rocket ever produced.
The masters of manipulation can't let this baby lift off - it will
knock them out of the game forever. But the countdown is over, ignition
has been activated, and the fuel is starting to burn. We're in that
twilight zone that only lasts a few seconds, but seems an eternity
- the time between when we see the flames and the rocket starts
to move. The engines are pouring out flames and billowing clouds
of steam - yet the rocket doesn't budge. Despite the greatest creation
of thrust ever developed, the mass of the rocket is so great it
seems to defy the laws of physics and does not move. But you know
it will. That's where we are in silver. Those few seconds of delay
in the Saturn lift-off may translate into a day, a week, a month
in silver. But don't be fooled by any twilight zone appearance of
delay in lift-off. Get your ticket and pack your bags - we're going
to the moon.
Ted Butler
October 2, 1999
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