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Ask the Expert – Ted Butler (September 2013)

By Nathan McDonald 5 years ago 4129 Views

In this exclusive interview, Ted Butler answers questions from our readers about the gold and silver market and his outlook on the economy.


Sprott Money News (SMN): Thank you, listeners, for joining us today on Ask the Expert. My name is Nathan McDonald of Sprott Money News, and we are very excited to have the pleasure of speaking with Ted Butler this morning. Ted Butler is an independent silver analyst who has been publishing unique precious metals commentaries on the internet since 1996. He is the head of Butler Research LLC, where he offers a subscription service of weekly commentaries, including detailed analysis of the Commitment of Traders Report, regulatory developments, supply and demand considerations, and topics of interest to investors in precious metals, with an emphasis on silver.

With this, I am pleased to welcome Ted Butler this morning. Hello, Ted.

Ted: Hey, Nathan. It's good to be here.

SMN: So, Ted, we've got a few questions in from our listeners. And there's a lot of talk lately about JP Morgan. And I know you've wrote about this recently as well. JP Morgan has been a prime manipulator in the precious metals market. Until recently, this manipulation has always been to the downside. It now appears that they have cornered the market to the upside. What do you believe JP Morgan's incentive is for doing this?

Ted: Well, first of all, they have cornered the Comex gold futures market to the upside, to the long side. They still have a corner on the short side of the Comex silver market. But as far as their incentive for doing this, this is a for-profit organization. Their main motive in any line of their business is to make money. The problem is that they basically created a monopoly or a corner on the Comex gold and silver market, and they're making those profits on what I consider an illegal basis. You're not allowed to dominate and control markets, even if your incentive is to make money. You have to do it within the body of commodity law, and they're clearly not doing that.

SMN: No, that's right. Ted, do you believe they will stay there, or do you believe the pressure will be placed on them from Western central banks to move back to a short position on their gold position?

Ted: Well, I don't know the connection with Western central banks. That's a little bit above my pay grade. I can go as far as looking at the public published data from the US government, the Commodity Futures Trading Commission, and figure out who's holding what by broad categories. It's kind of easy in the case of JP Morgan, to single them out. But the data stops there. It's like, why JP Morgan, if they're operating under somebody else's orders . . . as I said, that's above my pay grade. I can't know that.

They won't stay here, though. I mean, the profit to JP Morgan, or any commodity trader, comes from movement. Comes from positioning and changing those positions. And just to give you a recount from the beginning of this year, they started out the year massively short in both gold and silver. Gold, to the point of maybe 75,000 net contract and in silver, they were short upwards of 35,000 contracted, 175 million ounces.

Well, the whole reason we had a decline in the first half of the year was basically JP Morgan rigging and manipulating prices through their monopoly control of the Comex, to the point where the prices came down and they were able to buy back many of their short positions in silver. All of their short positions in gold, and then some. And they made about $3 billion on the Comex alone, closing out the short positions. And they rigged the price so low that they were able to actually get long and keep buying gold. To the tune of the beginning of August, they were, like, 85,000 contracts, 8 1/2 million ounces long in the gold market. And recently, they started selling that off, on the $200, $250 rally we've had from the bottom, and they've made another $300, $350 million on the 30,000 contracts of gold that they did sell out.

They never were able to pull back and buy all of their short positions in silver. They bought a lot, though. They bought about 100 million ounces worth, and made about $1 billion on that, too. They weren't able to get long in the silver market like they were able to get long in the gold market. So right now, they're sitting with a long side corner on the gold market, a monopoly on the Comex gold market to the long side and a short side manipulation, albeit reduced, but still a short side corner and concentration on the Comex silver market.

So they're going to move these positions. It's easy. They've already demonstrated that they'll sell out this gold position at a profit. The big declines that we've seen recently, including today, are nothing more, in my mind, than JP Morgan wanting to buy back those 30,000 contracts of gold that they recently sold out at a profit. And they're probably buying back as many of the silver short positions as they can.

The only reason we ever go down in price in gold and silver is so that the commercials, but mainly JP Morgan, can buy contracts. And the only reason they buy them is to make money, and the way they make money is they'll eventually sell it. So they're going to move this position eventually. And in the process, this is why prices move up and down based upon what JP Morgan wants to happen.

SMN: So you believe that they firmly have a grasp on the market, and basically, when it moves up and down in any significant manner, it's basically them?

Ted: 100%. There's no doubt in my mind. I'm trying to figure out why there's doubt in anyone's mind. Certainly I believe that people, my subscribers or readers, basically understand. Maybe it's a private service, or maybe it doesn't circulate that much. But basically, this is the gist of the market. It's highly corrupt. I mean, that we're speaking, this is going to be a public interview, and I'm sitting here basically calling JP Morgan a crook or a criminal enterprise, or conducting a criminal enterprise in the global silver market on the Comex. It’s remarkable. I've been doing it for five years, in varying degrees. And you should know that I have a lot of negative things, but very specific things to say about JP Morgan. But I always send everything I write about them to JP Morgan, to their CEO, Jamie Diamond, and to the head of the CME, the Comex, and also to all the commissioners of the Comex. It's just . . . I can't imagine. I didn't know you could call a major financial institution a criminal enterprise and get away with it.

SMN: So what's your response, Ted, when you send these emails to them?

Ted: I don't get a response. I don't get a return email, either. I mean, people at the CFTC acknowledge that they're reading this stuff, but I haven't had any return emails. They go through. I've written to each member of the Board of Directors of JP Morgan saying that they're involved in a criminal enterprise here. They're manipulating the market. Which is not just any crime. It's the most serious market crime possible. It's the equivalent of high treason, or murder one, or child kidnapping. It's the most serious market crime. So it's very unusual. I don't know. I don't get any response. I write with the idea not to slander or libel JP Morgan. That's not my intent. My intent is to get them to stop from doing this criminal activity that they're engaged in.

SMN: It sounds to me like they think that they're above the law.

Ted: I think that's an understatement, Nathan. Yes, I happen to agree. Or maybe there's some special government dispensation. I mean, they did come into this Comex control, this Comex monopoly as a result of taking over five years ago - five and a half years ago. In March of 2008, they took over Bear Stearns at the request of the US government. The Treasury Department, I believe.

In any event, I didn't know it at the time, but Bear Stearns, at that point, had been the big concentrated manipulator in the gold and silver market. They had huge short positions. The biggest short positions that existed. And JP Morgan, in taking over the firm Bear Stearns, which failed, basically inherited their gold and silver short positions. And I guess, I mean, that the government, the US government, the Treasury Department, had to be aware of this. And maybe they gave them some kind of leeway or special dispensation to close the position out, not disturb the markets too much.

But this is five and a half years ago. It's hard for me to imagine that this was intended in taking over Bear Stearns as granting JP Morgan a license to steal, on the Comex with these dominant or controlling positions. That's not the way commodity law is supposed to function. The problem is that I'm raising these issues in the most specific manner possible, but there's never a response. Not from JP Morgan. Not from the exchange, which should obviously be concerned about the allegations of market corners existing on their exchange. And not from the CFTC.

In fact, we've just gone through the five-year anniversary where the CFTC has been investigating- formal investigation of silver by their enforcement division, in which they'd mention from time to time over the years on their website that they're continuing this investigation in good conscience and in full, good effort. And this is the investigation that was initiated at my doing five years ago, because CFTC data showed that there was this huge short position in gold and silver on the Comex held by a US bank. And that's how it all came out that it was JP Morgan taking over Bear Stearns, etc.

But since that time, they don't say anything. It's like, I told, I think it was last week, I wrote to subscribers. I'm screaming 'Fire' at the top of my lungs in a crowded theater, and I'm doing it because I see a fire. I see JP Morgan controlling and manipulating the market. And I'm screaming out a warning, but there's no reaction. If I were screaming out 'Fire' for no good reason, and just accusing JP Morgan of doing something, and I was wrong, I was off-base, I had no good reason for doing it, I should be reprimanded. I should be made to stop. But that's not the case.

The case is that I'm pointing out a situation of clear manipulation on the Comex by the Commodity Commission's own guidelines and historical record for what they decided in the past manipulation was, but they're ignoring the most extreme circumstances now that they never would have allowed in the past.

So maybe there's something to this. The government's working with JP Morgan hand in hand. I just don't have a good answer for why nobody answers, or why the CFTC tolerates this or never comments on it.

SMN: Do you believe that they're working with JP Morgan? The CFTC?

Ted: I don't know. I mean, that's my question. I wish I had the answer to that. I mean, there has to be some connection. There has to be- there's something holding them back from either commenting on it. I mean, look, I guess I could be wrong. I guess I could be reading the Commitment of Traders wrong. But it's just numbers. They're showing a concentration, okay, in the US bank category of the bank participation report and it’s based on the same data, and the Commitment of Traders report that shows clear . . . look, if it's not JP Morgan, it's some other big bank. But it's hard for me to imagine it's not JP Morgan, because the CFTC did disclose that it was JP Morgan that took over Bear Stearns, and that was the only possibility. So they've been dominating this market for the last five and a half years.

I can't accuse them of having dominated the market prior to that. Prior to that, it was Bear Stearns, it was AIG, it was Drexel Burnham, in that successive order. But now it's clearly JP Morgan. And for the life of me, I can't figure out why the CFTC is tolerating it, because it's just basically against the most common precept of market regulation. Not letting a market corner develop.

In this case, we've got two corners. We've got a long side corner on gold, after having had a short side corner at the beginning of the year, and we have a short side corner in the silver market concurrently. I wish I knew. I wish I was a fly on the wall to see if anybody talks about this. But I’ve never had heard a word. It's incredible.

SMN: And I don't think they're going to openly tell anybody what they're actually doing until it all just blows up, maybe. But one of our viewers asks the following question: “I've come to the belief that gold and silver won't rise to their true market value until the Comex and the LBMA defaults. Do you believe that defaults need to occur before we can see the true price of physical gold and silver?”

Ted: Well, me, first, I'm going to leave out the LBMA. I think that's all smoke and mirrors, and it's the most opaque and non-transparent financial organization on the face of the earth. They don't provide any details about anything. As far as I'm concerned, the LBMA is like the guy in the Wizard of Oz behind the curtain. The LBMA could default, and I don't think anybody would know it, there's such a lack of transparency. So let's leave the LBMA out of it.

As far as the Comex, I think Comex dominates. I think Comex is where prices are set and are manipulated, and that's the mechanism. And I do agree that if the Comex were to go out of business, default, whatever word you want to use, that that would destroy the shorting mechanism. The prime shorting mechanism, that JP Morgan employs, and other commercials, that suppresses the price and manipulates the price. And were the Comex to fall off or cease to exist, and that shorting mechanism therefore cease to exist, then I think silver in particular would go berserk to the upside. But I don't think, I'm not foreseeing any immediate Comex default, and I don't think necessarily that that's the only thing that can free the silver market, silver and gold market from the yoke of manipulation currently enforced by JP Morgan. So it would do it. I mean, if the Comex blew up, I think the silver market and, to a lesser extent, the gold market, would blow up to the upside. But I don't think that that's the only thing that can cause the manipulation to end. The Comex doesn't have to default.

In fact, right now, it's probably not in the cards for the Comex to default. JP Morgan is long gold. They're not short gold. So they don't have a reason for the market to default now. They're not on the hook for anything. They're long gold, not short gold. But I don't think, in any event, that they must have defaults in order to break the manipulation. It would do it, but I don't think that's the only thing that has to. It can end in other ways.

SMN: I agree. The system is pretty unstable in itself. If the Comex did default, though, Ted, what do you think would be the repercussions to fiat currencies?

Ted: You know, that's really not my area. I don't know if there is a connection, or what the connection is. I mean, it's where . . . I look at silver in particular, but gold and silver in commodity form, supply demand, what's going on in the Comex, what price influences are there. I don't see the direct connection between currencies and metals. I mean, I'm not saying that there isn't a connection. I'm just saying that's not the way that I look at it. So I guess I wouldn't be the right guy to ask.

SMN: Okay. A lot of our viewers bring up the issue of gold confiscation. It's always an issue that comes up whenever you're talking about gold or silver, anything like that. I personally don't believe that there's enough gold in Western society to garner a gold confiscation. But do you foresee eventual gold confiscation occurring? Do you believe the banks are a safe place to keep your precious metals?

Ted: Well, no. I don't, you know what? It's not something that I think about so much. Full disclosure, I don't own any gold. I'm a silver guy. I own silver. So it's a theoretical question, I guess. And do I think they're going to confiscate your gold? They're not going to confiscate my gold, because I don't have any. But I don't think that. I don't see any reason for it. It's not such an integral part of the financial system that, I don't know what the benefit would be. It's not something that I think about constantly. I don't look at the market that way.

As far as where to keep metals, without getting specific, which bank and all that kind of stuff, I mean, sometimes you just have to have professional storage. If it's a bank, it's a bank. If it's an ETF, it's an ETF. And you've got to use a little bit of common sense. I mean, I think there's more risk out there from con artists and people out to steal money. I mean, I think you can go to the CFTC website, and they're constantly bringing actions against unregulated, unregistered dealers and people purporting to hold gold and silver. You've got to be careful about that.

But I don't think the biggest risk is that they're going to confiscate gold, or that the banks or wherever you may be storing it are going to take it away. You've got enough things to worry about with just JP Morgan manipulating the price. I think you've got to use common sense and prudence. And most of the registered, I like ETFs. Certainly Sprott ETF is, I even write SLV and DLV, which some people would swear puts the scarlet letter on me. But I don't see the risk there. It's not -, I can't guarantee that there'll never be a problem, but it's not a problem as far as I'm concerned.

SMN: That's right. So gold and silver appeared ready to move to the upside until the last couple of days, in which a renewed attack has occurred. What do you see happening to precious metals over the remainder of this year and in the long term?

Ted: Well, normally I try to avoid those things. But this particular, where we are right now, and particularly in silver, that we're at or below the legitimate cost of production for many silver miners, it's hard for me to imagine us finishing the year not higher from where we are now. Doesn't mean they can't push it lower in the meantime. It's still a manipulated and crooked market. But in the end, when you're at or below the cost of production, like I believe we are in silver, and not far away in gold, it's hard not to see prices move up.

If prices move-, as time goes on, if this manipulation, this stranglehold that JP Morgan has on the market right now breaks. And in time, it will break, then the sky's the limit. It is dependent. There's a big difference between a market that's in an active manipulation, what the price is there, and what that same commodity would be if there were no manipulation. It's like a night and day difference. And I think that's going to be the difference, particularly in silver, that-, when the manipulation is over, we won't have to ask ourselves if the market's still manipulated or not. It's going to be obvious by the facts. There won't be a big concentration on the short side that you can identify as a suppressant on the price, and the price will be a different level. There'll be no obvious drag on price.

In the meantime, you just have to position yourself accordingly, that these guys may not be forced or end this manipulation in the very near term, and just be prepared to wait it out. But it's, you don't want to lose track, either, that this manipulation which driven the price of silver below the cost of production for many primary silver miners, it's not economically feasible for that to continue forever. And prices currently are much lower than they will be in time, and as this manipulation comes more into focus. That's been the history to the last five to 10 years. It's very irregular, but I remember having these, I don't have many of these conversations, but I remember having these conversations, when silver was in the $4 or $5 area. We moved more than tenfold from the bottom. We've pulled back substantially now, about 50% or more. And this is the way markets move, even manipulated markets. But it will definitely, I won't say, I won't give a specific time period, but we'll certainly take out the old highs, $50 or so, like nothing, when the time is right. And you've got to be prepared for that.

SMN: Thanks for your insights, Ted. In conclusion, can you please tell us more about Butler Research and the services that you offer?

Ted: Well, it's a running commentary. I offer usually at least two fairly lengthy commentaries each week on what's going on in the silver and gold markets. Looking at the Commitment of Traders. Looking at-, I don't hold back on labeling JP Morgan as the big silver and gold crook, certainly. It's a longer term look at the market. It's both historical and prospective, and it's the kind of thing, the way it's set up, we do it on a monthly basis, that somebody will know right away if it's for them or not. And you don't have to make a long-term commitment or anything like that. So it's a fun thing to do, too. It gives me a chance to vent a little bit more than I'm venting with you today.

SMN: Well, thanks for joining us today, Ted, on Sprott Money, and we hope to have you back again in the future.

Ted: Thanks a lot, Nathan. You have a good day.

SMN: Thanks.


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