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RealityCheck | 05-09-2006 03:35 PM
Butlers latest (Today) http://www.investmentrarities.com/weeklycommentary.htm <!-- ImageReady Slices (template.psd) --> <TABLE cellSpacing=2 cellPadding=2 width=487><TBODY><TR><TD vAlign=top width=3><TABLE width=482><TBODY><TR><TD width=474><SCRIPT language=JavaScript><!--if (window.print) {document.write(' <form>'+ '<input type=button name=print value="Print this page." '+ 'onClick="javascript:window.print()"></form>');}// --> </SCRIPT> <FORM><INPUT onclick=javascript:window.print() type=button value="Print this page." name=print></FORM> Archives TED BUTLER'S ARCHIVES TED BUTLER COMMENTARY May 8, 2006 (This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.) Buffett Loses His Silver The recent revelation that the renowned investor Warren Buffett sold his silver was a mega-event. It was big news when Mr. Buffett bought silver some 8 or 9 years ago, and its sale is also big news. Let me state the facts as I know them, and then I�ll speculate. Mr. Buffett always said he would make it known when he sold his silver and he kept his word, using the occasion of his company�s annual meeting to tell of the sale. While he did not reveal the exact amount, time and price of the sale, he indicated that he "sold too early" and did not profit from the sale. I found that very surprising and particularly unusual for Buffett. According to public statements, Mr. Buffett had amassed a large chunk of silver (between 90 and 130 million ounces) by early 1998 at low prices (under $6). Mr. Buffett was very clear as to why he purchased the silver, citing the fundamentals in the same manner that I have described them and professing to be in for the long term. I wrote several articles at that time, praising and congratulating Mr. Buffett on his investment acumen. Silver has hit recent highs amid those fundamentals playing out almost exactly as anticipated by Buffett and myself and others. Why would Buffett sell the silver too early and how could he not profit from the recent spectacular price rise the way so many others have profited? After all, this man is an investment legend. Here�s what I think happened. Buffett didn�t sell his silver willingly, it was taken from him. He lost it. He lost it through speculation in derivatives of the very kind he publicly vilifies. Those who have followed the silver market closely have come to know the incredible reliability of the pattern of tech fund/dealer buying and selling of silver futures on the COMEX. This pattern has been documented by the weekly Commitment of Traders Report (COT), which I have written about in countless articles. I believe that Mr. Buffett (or his advisors) also came to appreciate the compelling logic and power of the COTs. I believe that Mr. Buffett (or his advisors) became a card-carrying member of the dealer silver wolf pack, skinning the tech funds for years. I also believe that Buffett�s involvement in beating the tech funds regularly ultimately ended with his silver being taken from him. It worked like this. When the tech funds plowed onto the long side in silver as the price broke through various moving averages on the upside, Buffett (or his advisors) would sell short against his real silver holdings. When the tech funds finally sold as prices fell back through the moving averages, those shorts established by Buffett would be bought back., booking substantial recurring profits. The beauty of the scheme was that these shorts would not be considered "naked" by the regulators, even though there were many more affiliated wolf-pack tag-along shorts that were naked. (Whether it is legal for someone with a very large real silver position to use that position to dominate futures trading under the guise of hedging is a matter that I won�t explore at this time.) But what worked swimmingly for years, namely, the regularity of tech fund buying and selling at expected price points, stopped working about eight months ago. The tech funds plowed onto the long side back in September at around $7.50 and the dealers sold short aggressively. But instead of the price collapsing, as it always did in the past, the price of silver doubled. And it caught many, including me, off guard. (Not for core positions, but speculative trading). I think it caught Buffett off guard as well. So much so that he had no choice but to turn over his real silver to cover his going short at $7.50 or so. He could have bought it back at $12 or $13 and booked a big loss while keeping his silver, but that disclosure might have been embarrassing. This would explain how Buffett emerged from silver basically breaking even and selling too early. I�m sure he made big profits trading against the tech funds for years, but it is up to him to disclose that. I must confess to a sense of disappointment, in that if my speculation is correct, I feel let down by Buffett, given his public statements on silver and derivatives. I�m sure that is of little consequence to him. More of a consequence to him is that he lost his silver playing derivatives. The lesson to be learned is don�t lose your silver by getting fancy. That this is a bullish event for silver is beyond question. Buffett�s silver no longer overhangs the market and, more importantly, the silver wolf pack has lost a prime member, if not its leader (I still lean towards China as the leader, but that is also speculation). Given the current favorable market structure as defined by the COTs, the next rally will not be aggressively sold short by the dealers, as I have contended recently. My new speculation about Buffett only strengthens my contention. If I am correct, it�s watch out above. MARGIN INCREASES I would like to comment on the recent round of margin increases for COMEX silver futures. http://www.nymex.com/notice_to_member.aspx?id=ntm235&archive=2006 Long-time readers know that I rarely mention margin changes. That�s because I don�t think that all margin increases are bad and are designed to cause selling by long holders as many claim. Looking at the issue through my former broker�s eyes, I know that margins exist for one reason and one reason only � to protect the broker from unsecured client debits. Margins are increased when it is felt the brokers need more protection and reduced when less protection is needed. But sometimes margins are used to influence the market. I feel that is the case with the last round of margin increases in silver. What made this last margin increase unusual is that, for the first time in 25 years, the COMEX differentiated margin requirements between the front months in silver (up through the September contract) and the more deferred contract months. In my opinion, the COMEX has done this for one reason only � they see delivery problems ahead for silver and are attempting to clear out as many hangers-on as possible. This can also be seen in the backwardization that has been developing in the December 2006 and further out contracts of COMEX silver. The COMEX attempted to camouflage their real intent in silver by also making a differentiation in the nearby gold months versus the deferred gold contract months, but any serious market observer knows that is silly in gold, where there is not the hint of a delivery squeeze. You must understand that all exchanges, including the COMEX, operate and set rule changes for the benefit of their most important members, and not the public at large. In most cases, the most important members are the commercial shorts. These shorts want as little outside pressure on silver deliveries as possible, and that is why they are making it easy and enticing for longs (and maybe even outside shorts) to clear out of the nearbys and migrate to the back months. As a general rule, whenever a financial institution attempts to get you to do something, the prime motive is for the benefit of the institution and not you. Please be guided accordingly. BARRICKS BLACK EYE Another development I�d like to mention is the quarterly earnings report by Barrick Gold. As expected, Barrick acknowledged another large gold short derivatives loss. Though this loss was buried deep in the body of the report, the combined first quarter realized and open loss grew to over $5.5 billion. No other entity has ever reported a loss so large. http://www.barrick.com/Theme/Barrick/files/docs_quarter/2006_Q1_rev2.pdf The surprise in the Barrick report was the aggressive covering, or buy back, of the gold short position. Fully 25% of the year-end 20 million ounce gold short position was bought back in the quarter, with more since the quarter end. While the first 4.7 million ounces covered in the first quarter cost Barrick $814 million, or a loss of $173 per ounce, the last million ounces bought back after quarter end cost Barrick $386 million, or an astounding $386 per ounce. Aside from selling short at the absolute low in the gold price for the past few years and then buying back at the absolute high, there is no other way to lose that much money per ounce. The other surprise in the Barrick report was that, even though they booked a big loss in covering some gold shorts, they still reported a profit. This is the financial equivalent of alchemy turning lead into gold. If I had a financial interest in Barrick, I would complain to the SEC and the Financial Accounting Standards Board. Since I don�t have a financial interest, I can only marvel at the creativity of the accountants and lawyers that Barrick employs that can magically turn losses into profits. I just wish I could get them to prepare my tax returns. One thing I haven�t seen mentioned in the gold community has been the effect Barrick�s buy back has had on the price of gold. That gold has rallied sharply as Barrick has been buying gold is no coincidence. The almost 6 million ounces that Barrick has purchased recently is more than $3.5 billion worth of gold. It�s more than half of what the big gold ETF (GLD) holds. Remember, GLD took a year and a half to buy its gold; Barrick took a couple of months. If anyone has a better reason why gold has rallied sharply, I�d love to hear it. NO INCREASE IN SILVER MINING PRODUCTION One nugget contained in the Barrick report that I wasn�t looking for, was their projection for silver production for 2006. Barrick was the 5<SUP>th</SUP> largest company producer of silver in the world last year. http://www.goldsheetlinks.com/agtable.htm. Unless I�ve missed something, the 10 million ounce estimated silver production for 2006 is more than 50% less than the combined Barrick and Placer Dome 2005 production of almost 21 million ounces. I think this is due to the depletion at a number of their mines, most notably the Eskay Creek (acquired when Barrick bought out Homestake Mining). Combined with the 20% cut back in production at the world�s biggest mine, the Cannington in Australia, announced a couple of weeks ago, it is hard to believe reports stating that silver production is due to increase this year. Not when the number one and number five producers are off so sharply. THE ETF GAINS I had planned to write about a number of different issues this week, in response to a large number of e-mails, but I am postponing them in order to deal with two very big silver events � the commencement of trading of the Silver ETF (Exchange Traded Fund) and the sale of silver by Warren Buffett�s Berkshire Hathaway. There is no doubt in my mind that both events are profoundly bullish for silver in the long term. Since I had written my last article, the Silver ETF (AMEX symbol SLV) has commenced trading. As of the first week or so of trading, it has purchased and holds over 48 million ounces of silver. While it is no secret that I was skeptical that the authorities would approve a security that promised to greatly impact the price of silver, I was wrong. However, I was not wrong in predicting that there would be a big impact on the price of silver. It has doubled in the eight months from the initial ETF filing. Now that the silver ETF is up and running, where do we go from here? Undoubtedly, the first week�s pace of silver accumulation will cool off, but will continue in time. We have witnessed this pattern in the gold ETF (GLD), namely, spurts and then plateaus in accumulation, but with higher totals a year and a half after initial issuance. There is no reason to expect a different pattern in silver. In fact, one could argue higher proportional accumulation in the silver ETF than in the gold version. Just like the Great White Shark is said to be the perfect eating machine of the sea, the silver ETF is the perfect silver-eating machine. I say this because the ETF has created a connection between the best investment opportunity in the world with the largest investable pool of money in the world. Heretofore, institutional investors did not invest in silver, for the most part. Very few could deal in futures to take delivery or buy the real thing directly. Now they can, since most institutional investors can deal in stocks, which is the form of the silver ETF. I believe the world of silver changed dramatically on April 28, 2006, when the silver ETF started trading and opened the silver door to institutional and retirement accounts. It is inconceivable to me that many institutional investors won�t come to grasp the true potential of silver as an investment and their newfound ability to participate in that investment. Years ago, I wrote an article called "The Silver Challenge" in which I dared the reader to study closely the facts regarding silver and try and not end up buying silver. Those that took the challenge and did buy silver have been, and will continue to be, greatly rewarded. There are many intelligent institutional money managers who are constantly on the prowl for sound investment opportunities. Some number of them will find silver. There are other institutional managers who are already aware of silver�s merits, but have not been able to buy it because it was a metal, not a stock. Thanks to the ETF, silver is now a stock. COPYCATS Lastly, and reluctantly, I must once again confront the issue of plagiarism. I don�t find it complimentary or amusing when someone copies my work without approval or citation. I give my knowledge and opinion freely and openly. That does not mean it can be taken and reproduced without attribution for someone else�s monetary benefit. Let me remind those guilty that plagiarism is stealing, and stealing is against every legal, moral and religious tenet known to man. You don�t have to be a Bible expert to know this, just read the Ten Commandments. </TD></TR></TBODY></TABLE> <TABLE cellSpacing=0 cellPadding=0 border=0><TBODY><TR><TD colSpan=2>http://www.investmentrarities.com/images/footer_01.gif</TD></TR><TR><TD> http://www.investmentrarities.com/images/footer_02.gif </TD><TD> http://www.investmentrarities.com/images/media.gif </TD></TR></TBODY></TABLE> All Rights Reserved � 2002 Investment Rarities, Inc. For Web Site Questions Contact the Web Master Disclaimer </TD></TR></TBODY></TABLE><!-- End ImageReady Slices -->

Waypoint-Trading | 05-09-2006 04:50 PM
Re: Butlers latest (Today) Quote:
Originally Posted by RealityCheck But instead of the price collapsing, as it always did in the past, the price of silver doubled. And it caught many, including me, off guard. (Not for core positions, but speculative trading). I think it caught Buffett off guard as well. So much so that he had no choice but to turn over his real silver to cover his going short at $7.50 or so. He could have bought it back at $12 or $13 and booked a big loss while keeping his silver, but that disclosure might have been embarrassing. This would explain how Buffett emerged from silver basically breaking even and selling too early.
So who is the long that now has title to the physical silver?? If Ted Butler is right the 130 MM Oz still exists! :confused: :confused: <!-- ImageReady Slices (template.psd) --><TABLE cellSpacing=2 cellPadding=2 width=487><TBODY><TR><TD vAlign=top width=3> <TABLE cellSpacing=0 cellPadding=0 border=0><TBODY><TR><TD colSpan=2></TD></TR><TR><TD> </TD><TD> </TD></TR></TBODY></TABLE> </TD></TR></TBODY></TABLE><!-- End ImageReady Slices -->

DrillAndFill | 05-09-2006 04:57 PM
Re: Butlers latest (Today) Quote:
Originally Posted by Waypoint-Trading So who is the long that now has title to the physical silver?? If Ted Butler is right the 130 MM Oz still exists! :confused: :confused:
I took it out in 10-ouncers from Tulving. Airlifted by helicopter(s) into my back garden. Probably held by lots of entities, and some of it has likely been consumed (or soon will be) by electronics and jewelry fabricators. I haven't really answered your question, though, because nobody knows for sure who is taking delivery: consumers or stockpilers?

aikitrader | 05-09-2006 04:59 PM
Re: Butlers latest (Today) Quote:
Originally Posted by Waypoint-Trading So who is the long that now has title to the physical silver?? If Ted Butler is right the 130 MM Oz still exists!
My guess would be China has absorbed it and is now kinda part of the silver cartel trying to keep the price down. Why China....cuz they need cheap materials to make their goods for the world.

MerryL | 05-09-2006 05:11 PM
Re: Butlers latest (Today) I was hoping that Ted Butler would directly respond to Fekete's criticisms but he did mention backwardization which may be his way of acknowledging. Also, does anyone know who plagiarized Ted Butler--he mentions it at the end of his column. Inquiring minds want to know...:bandit:

Waypoint-Trading | 05-09-2006 05:14 PM
Re: Butlers latest (Today) I have seen his COT ideas and analysis word for word on Gold-Eagle.com editiorials which are usually parts of newsletters written to subscribers. That, I believe, is what he means by those profiting from his ideas.

<SLV> | 05-09-2006 05:35 PM
Re: Butlers latest (Today) Quote:
Originally Posted by MerryL I was hoping that Ted Butler would directly respond to Fekete's criticisms but he did mention backwardization which may be his way of acknowledging. Also, does anyone know who plagiarized Ted Butler--he mentions it at the end of his column. Inquiring minds want to know...:bandit:
His references to the Bible seem to make it a shot at Hommel.

Waypoint-Trading | 05-09-2006 05:46 PM
Re: Butlers latest (Today) Quote:
Originally Posted by SuddenImpact I am not going to say, but I think a certain bit of " info" is out and those people with bucks know it and are buying.
OK, I am dense, what did I miss??

MerryL | 05-09-2006 07:37 PM
Re: Butlers latest (Today) If I combine the reasoning from Fekete's article (discussed here:http://goldismoney.info/forums/showthread.php?t=35631 ) with Ted Butler's theory about Buffet, then I get this: The silver shorts haven't been naked because they have been using Buffet's silver. But now, Buffet doesn't have the silver anymore so the price could explode. How's my logic? It's so convenient for SLV that Buffet waited until after they had started trading to announce the overhang was now gone.

Ragnarok | 05-09-2006 07:46 PM
Re: Butlers latest (Today) "The almost 6 million ounces that Barrick has purchased recently is more than $3.5 billion worth of gold. It’s more than half of what the big gold ETF (GLD) holds. Remember, GLD took a year and a half to buy its gold; Barrick took a couple of months. If anyone has a better reason why gold has rallied sharply, I’d love to hear it." A-HA! That makes sense. I wonder if they are going to stop buying at that rate. The falling dollar booster strapped to the gold rocket performed flawlessly today. That can't be encouraging for Barrick. Today gold said, "700? Yeah, I can go there if I want. (yawns, leans over touching 700 with a pinkie finger) C'mon gimme a challenge!" Ragnarok

lhslancers | 05-09-2006 07:47 PM
Re: Butlers latest (Today) Quote:
Originally Posted by Waypoint-Trading So who is the long that now has title to the physical silver?? If Ted Butler is right the 130 MM Oz still exists! :confused: :confused: <!-- ImageReady Slices (template.psd) --><TABLE cellSpacing=2 cellPadding=2 width=487><TBODY><TR><TD vAlign=top width=3> <TABLE cellSpacing=0 cellPadding=0 border=0><TBODY><TR><TD colSpan=2></TD></TR><TR><TD> </TD><TD> </TD></TR></TBODY></TABLE> </TD></TR></TBODY></TABLE><!-- End ImageReady Slices -->
Of course it exists.

lhslancers | 05-09-2006 07:51 PM
Re: Butlers latest (Today) Quote:
Originally Posted by SuddenImpact Folks there is ONE reason I think the PM's busted loose today and will not go down, never mind a buck one day.. I am not going to say, but I think a certain bit of " info" is out and those people with bucks know it and are buying. VA. coin dealer's doing big deals, as I suppose apmex is.
Gold and Silver did not bust out today. Silver has yet to make a new high while Gold still needs to close over 730 before it signals a move to 850 and beyond. No doubt we go a lot higher eventually but I'm not adding now.

naccarato | 05-09-2006 08:15 PM
Re: Butlers latest (Today) Quote:
Originally Posted by lhslancers Gold and Silver did not bust out today. Silver has yet to make a new high while Gold still needs to close over 730 before it signals a move to 850 and beyond. No doubt we go a lot higher eventually but I'm not adding now.
This is a chart someone showed at another forum from 1980, his opinion was that Gold was going to hit that resistance at 715. http://www.kitcomm.com/comments/gold...es/au1980b.bmp

<SLV> | 05-09-2006 08:20 PM
Re: Butlers latest (Today) Quote:
Originally Posted by naccarato This is a chart someone showed at another forum from 1980, his opinion was that Gold was going to hit that resistance at 715. http://www.kitcomm.com/comments/gold...es/au1980b.bmp
But, that was 1980 dollars, so it is really irrelevant.

Waypoint-Trading | 05-09-2006 08:21 PM
Re: Butlers latest (Today) Quote:
Originally Posted by lhslancers Of course it exists.
Precisely the point. Everyone assumes that it was "used up" in the market. If Butler's supposition is correct then it was transferred via paper transaction and the physical silver sits in a vault in London, held by a long. Still available to the market.

lhslancers | 05-09-2006 08:38 PM
Re: Butlers latest (Today) Quote:
Originally Posted by <SLV> But, that was 1980 dollars, so it is really irrelevant.
It's not irrelevant. Do you see the $15 resistance in Silver at work? $720 may or may not hold Gold back initially but prices paid for stocks or commodities seem to atttract buying and selling no matter how long the time period involved. As a matter of fact the longer the time period the more important it is when that price breaks as support or resistance. Prices reflect everything inflation included.

TomD | 05-10-2006 04:48 PM
Re: Butlers latest (Today) OK, I get dense sometimes but there is one thing that I don't understand about the contention that Buffet was covering shorts with the silver. I can see no reason that he would purposefully act to hold the value of his own holdings down. You could say that he knew that the shorting was going to happen anyway so he figured to join in to profit but then there was no reason to buy the silver in the first place because he could have made the short money naked, without having to spend the billion on silver. There's a hole in my logic somewhere because I make no claim to being on the same planet with Buffet mentally.

Large Sarge | 05-10-2006 04:52 PM
Re: Butlers latest (Today) Quote:
Originally Posted by Waypoint-Trading OK, I am dense, what did I miss??
attack on Iran seems imminent

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