Ted Butler: More Unanswered Questions

It was, after all, a simple question that sparked my interest in silver from the start. Some 35 years ago, my now-departed friend and mentor, Israel Friedman, challenged me with a question that took me a year to answer. Actually, “challenged” is not the right word, either back then or today. Izzy simply asked a question to which he had no real answer of someone he thought might be able to answer. In a real sense, the question conveyed a degree of respect, in that Izzy only asked me because he thought I might have an answer. It is with that same degree of respect that I ask for answers to my own questions today.

Back then (1985), Izzy asked me why I thought silver was priced so cheaply (around $5/oz) in the face of universal awareness that the world was consuming more silver than was being produced (mining plus recycling); a deficit consumption pattern that had existed for more than 45 years to that point. Simply put, a deficit consumption pattern is the single most bullish condition possible for any commodity, yet silver appeared to be immune from the law of supply and demand.

Of course, silver had run up to $50 five years earlier, thanks largely to the Hunt Brothers, and Izzy had played that run better than just about anyone, buying at $4 and selling at $40. But that was then (1980) and this was now (1985) and silver was again as low as it had been when Izzy first bought it in the mid-1970’s. Since he had already mastered the silver market, I was a bit perplexed why Izzy was even asking me to answer his question, but I could see he was asking because he valued my opinion – it was less a challenge and much more a seeking of the right answer. In that circumstance, I was not about to offer some off the top of my head flippant answer and I told Izzy I would think about it.

As it turned out, I thought about the answer for more than a year, because Izzy’s question was so darned good – why silver was so cheap in the face of the most bullish supply and demand circumstances possible for any commodity. The answer, of course, was that silver was artificially depressed in price due to excessive and concentrated short selling in COMEX futures – the same answer that explains silver’s depressed price to this day. Quite ironically, Izzy did not accept my answer for a number of years (because I don’t think he was expecting it), but eventually came to embrace it fully, coming to coin terms like “slicing the salami” (the practice by which the commercials get the technical funds to buy or sell) and “full pants down” (an overrun of the big commercial shorts).

Since I believe that much general good came from Izzy asking me his question so many years ago, I would like to use that same approach now to solicit an answer to a question that has bothered me for the past eight and a half years. I do think I know much of the answer (which I’ll provide), but I would like to hear what others have to say since it’s something rarely discussed. I’ll state the facts which can be easily verified and ask you to come up with an answer to the question of why so much silver is being physically moved in and out from the COMEX silver warehouses?

- Source, Ted Butler, read the full article here