Cook: What is the reason for the extreme price volatility in the silver market?
Butler: We're reaching the end of the line, in terms of the final resolution and the train is shaking so much, it looks to be coming off the tracks.
Cook: Is this a good thing?
Butler: It’s the best thing possible, because it signifies an end to the price control.
Cook: What will that do?
Butler: It should set the price free. The only reason silver has been so cheap is because a few big short sellers on the COMEX have suppressed the price. But growing physical demand has put these big short sellers in a bind and they are losing more money than they ever dreamed possible.
Cook: What about JPMorgan - aren't they a big part of the short sellers?
Butler: JPM used to be the biggest COMEX short seller, but they managed not only to slip out from all their paper short positions, but build up a tremendous physical silver and gold position over the years. JPM went from the biggest short seller to the biggest long ever seen. It's quite remarkable and extraordinarily bullish.
Cook: Are you saying physical demand is now such that it can overcome paper trading on the futures market?
Butler: Yes, exactly – but with the added kicker that the former biggest paper manipulator, JPMorgan, is now the biggest physical long.
Cook: Where is this great demand coming from?
Butler: Everywhere, namely, both retail and wholesale. Of course, wholesale demand has the biggest impact on price. Since the middle of March, some 400 million physical ounces have been demanded and have come into the COMEX warehouses and the world's ETFs.
Cook: Can you put that quantity of silver into perspective?
Butler: 400 million ounces represents 20% of the world’s silver bullion. That’s in the form of industry-standard good-delivery 1,000 ounce bars. Of the 2 billion ounces of silver that exists in the world, 75% of it is already in the silver ETFs and COMEX warehouses. That’s 1.5 billion ounces of silver. What’s even more astonishing is that 400 million ounces is 50% of annual world mine production and the transactions for that much silver did not do much to the price.
Cook: How can 400 million ounces change hands without an enormous price eruption?
Butler: There’s only one explanation. The paper positioning on the COMEX sets the price no matter what else is happening in the world of silver. That such a massive amount flowed into the ETFs and the COMEX in such a short period of time is all anybody should be talking about, especially since this is going to end soon.
Cook: How great might the loss be for the big short sellers?
Butler: At this point, the 8 largest shorts in gold and silver are out around $13 billion, mostly on the rally in gold over the past year or so. But with silver having moved higher recently, they are starting to lose big on silver. At this point every dollar higher on silver creates an additional $370 million in losses for the 8 biggest shorts. A ten dollar move will cost them $3.7 billion from here and a twenty dollar move $7.5 billion. And that's just for starters.
Cook: Is this what they call a short squeeze?
Butler: Yes, and the move up in gold and silver at this point already qualifies as one of largest, if not the largest short squeeze in history.
Cook: Where can these short sellers possibly get the silver they need to cover their short positions?
Butler: Getting the physical silver to deliver at this point is not really possible – the most practical course for them is to buy back their shorts, which will only add upside fuel to the coming price fire.
Cook: How high can silver go?
Butler: After watching the prices of so many things, like stocks and Bitcoin, move far higher than I ever would have imagined, I can't help but believe that silver will move far higher than I previously imagined – well over $100 or $200. Certainly silver has better fundamentals than anything else out there.
Cook: Is it possible the government will get involved because some of these banks who are short are considered too big to be allowed to fail?
Butler: Should the government openly move to aid the banks which are short silver, that would be letting the whole world know that the price had been suppressed and serve as a personal invitation for everyone to buy silver.
Cook: These big shorts have crushed the price many times in the past. What if they strike again?
Butler: They may, but the tide is moving against them. Try coming up with a legitimate reason for being heavily short silver at prevailing prices and watch yourself get laughed out of the room.
Cook: One of your strongest arguments for silver is that the price is artificially low because of the concentrated short position. Could you call silver a value investment?
Butler: Silver is the ultimate value investment, not only because it is so darn cheap, but because it is absolutely vital for modern life. We are going to have a pitched battle between industrial silver users who need silver to stay in business and investors seeking outsized gains. Do you not believe this was behind JPMorgan's accumulation of one billion ounces of physical silver?
Cook: One last question. If the situation is so dire for the big shorts as you suggest, why haven’t they started to at least reduce their short positions over the last year?
Butler: That's an excellent question. Best I can determine, they only react when they are forced to. In gold, it wasn't until the 8 big shorts were out more than $5 billion that they started to bring in enough physical gold to offset their growing open losses. Since silver only started to rally strongly this summer (compared to the gold rally which started a year earlier), the 8 big shorts haven't had enough time to react. There's been some recent increase in COMEX silver warehouse stocks, but nowhere near enough to offset their paper shorts. More to the point, I don't think the 8 big shorts can come up with the 300 million+ physical ounces they need in silver. That leaves buying back these short positions as the only practical remedy and that means a price explosion. I once wrote that when silver goes off, it will be like an atom bomb on a hydrogen bomb on a neutron bomb.
Cook: The silver story must be the best kept secret on earth.
Butler: I'm trying my best to make others see it. I don’t think there will be anything like it again in my lifetime.
Ted Butler is considered to be the nation’s foremost expert on silver. He is the editor of Butler Research LLC (butlerresearch.com). Jim Cook is the president Investment Rarities, a company he founded in 1973 (investmentrarities.com).
James R. Cook
Investment Rarities Inc.
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