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Interview With Theodore Butler
By: James Cook & Theodore Butler
-- Posted 6 November, 2007
Cook: Any chance the big gold and silver short sellers will be overrun here and send prices to the moon?
Butler: There’s always a chance of that. And while that chance is perhaps greater than before, given the general stress that banks and dealers are under due to the credit crisis, and the sheer size of the gold short position, it’s certainly not guaranteed.
Cook: Care to lay odds on it?
Butler: Not really, as that would be pure speculation on my part. The truth is that no one knows how it will turn out short term.
Cook: What do you know?
Butler: The COMEX gold short position has grown to unprecedented extreme levels, while the silver short position hasn’t grown at the same pace recently.
Cook: Is the gold short position now larger than the silver short position?
Butler: Good heavens, no. I can’t imagine that ever happening, The short position in silver is so extremely large that nothing comes close to it. Usually, the silver short position grows faster, as prices move higher, than gold, and then gold catches up. This time it’s been different.
Cook: What happens to the price when they get overrun?
Butler: You never get tired of asking me that question. Of course, prices will explode and run rampant to the upside.
Cook: Now, let’s assume the price is running up. What do the big industrial users do?
Butler: They become alarmed. Some will panic and begin to build inventories of physical metal. That will deny other users the material they need to sustain operations, inducing more panic buying.
Cook: Now we really have a roaring bull and all of a sudden everyone wants to own silver. What goes on with the billion ounces sold by banks and brokerage firms you say doesn’t exist?
Butler: At some point, and no one knows what that price point is, they will also look to protect themselves and move to limit their growing losses. I don’t think they will try to buy physical silver, but rather some type of silver paper derivatives to hedge to the upside.
Cook: Will that hype the price?
Butler: Enough new short sellers will not exist to allow these banks and brokerages to cover without adding further upside pressure to the price of silver.
Cook: You are describing a series of different forces converging to buy silver at higher and higher prices. How high is the question we all want answered?
Butler: Look, I know what you want. But throwing out numbers to shock people is not my game. I’m an analyst and what I am trying to convey is the unusual and unique set of circumstances that exist in silver that must result, at some point, in much higher prices than most can even imagine – in the hundreds of dollars per ounce.
Cook: This silver price rise is going to be a big problem for a lot of people.
Butler: Exactly. I think it’s important to put all this into proper perspective. Recently, my good friend, and mentor, Izzy has been talking about something that is quite profound.
Cook: What’s that?
Butler: What we have in silver is a material problem, not a money problem. Most problems we have in the world currently are money problems. The credit crisis, the housing situation, the dollar, even the gold short position are money problems. At some price and for some amount of money, these problems can be solved. Not so in silver.
Cook: Money won’t do it?
Butler: There’s not enough physical silver around to allow the problem to be solved. This makes the silver short problem unique among all the problems in the world.
Cook: Is the short position in gold similar to the short position in silver?
Butler: As large as the short position is in gold, it’s not more than 100 million ounces. In dollar terms, that’s $80 billion, but that’s only a couple of percent of the gold known to exist.
Cook: Compare that to silver.
Butler: The silver total short position, including the COMEX, forward selling and the unbacked silver certificates issued by banks and brokerages, runs into the billions of ounces. Call it 2 billion ounces. In dollar terms, it’s less than $30 billion. But in physical ounces, it is double or triple the total of all the silver that exists above ground. Where gold has a short position equal to 2% of all the gold in existence, silver has a short position of 200% to 300% of all the silver bullion that exists. That means that the silver short position, in physical ounces, is a hundred times or more larger than the gold short position.
Cook: So, if the big shorts can’t come up with the physical silver necessary to bail them out, wouldn’t the price have to go much higher than anybody currently contemplates?
Butler: That’s true, but it’s much more than that. Izzy’s point is that it’s not just a question of how high the price goes. There isn’t enough silver available to cover the shorts because the physical material just doesn’t exist in the quantities sold short. I admit, this is a concept that is difficult to understand.
Cook: If things blow up in the silver market the way you predict, I wouldn’t want my silver overseas and I wouldn’t want it commingled with other people’s silver. Do you see a lot of financial failures coming out of this silver saga?
Butler: I don’t see how defaults can be avoided.
Cook: Why hasn’t silver gone up at the same rate as gold recently?
Butler: It has to do with paper trading on the COMEX, and I think it would be a mistake to read too much into short term price movements.
Cook: You would have thought the physical shortage you often talk about would begin to appear in the price. Why hasn’t it?
Butler: You keep asking me the same question in different terms. I keep answering that the price is manipulated by the big concentrated shorts. Put things in perspective. If I told you a few years ago that the price would be double or triple, you’d be kissing me.
Cook: We haven’t talked much lately about Asian demand. China, India and Indonesia have a population of 3 billion, about ten times more people than the U.S. Those economies are taking off. How many ounces of silver would you guess they consume annually?
Butler: Rather than think of it in terms of how many millions of ounces, I think in terms of the rate of growth in consumption. For all raw materials and natural resources, the rate of increase in the rate of consumption in Asia is phenomenal.
Cook: What about investment demand from these countries? As these Asian people get richer, aren’t they historically attuned to owning silver?
Butler: Yes.
Cook: You’ve said silver is less plentiful than gold. That claim is so outlandish that I don’t think anybody grasps it fully. How can gold be fifty times more valuable than silver if there’s less silver, and how can that be true if the industrial demand for silver is much greater than gold?
Butler: Many claim that it’s outlandish to say that silver is rarer than gold, but you won’t find anyone who can prove otherwise. Some will make up complicated stories, but no one can show you there exists more silver than gold. And just to be clear, I’m talking about bullion and bullion-equivalent material, not teapots or necklaces on Indian brides.
Cook: The gold bugs don’t seem to be listening.
Butler: They will eventually. Gold bugs are generally very intelligent people and that includes many of my friends. They’re smart enough to grasp this rarity issue.
Cook: How much silver was there above ground one hundred years ago?
Butler: My research indicates about 12 billion ounces of silver and about one billion ounces of gold.
Cook: And today?
Butler: Almost the reverse – one billion ounces of silver and five billion ounces of gold.
Cook: How can that be?
Butler: We consume silver while we accumulate gold.
Cook: Is the known silver literally being used up?
Butler: Wrong tense, it has been literally used up.
Cook: Disappearing from earth?
Butler: In practical terms yes. It’s not vaporized, but has been put into a form that is largely non-recoverable. Or, at the very least, unrecoverable at anything but super high prices.
Cook: It sounds like we’re going to have to find substitutes for silver. Agree?
Butler: Sure, that’s a function of the free market. But, given silver’s unique properties, new uses keep popping up, so net substitution or falling demand becomes doubtful.
Cook: You are suggesting that silver offers one of the most spectacular profit opportunities in history. How come I can listen all day to financial TV and not hear a word about silver?
Butler: Ask them, not me. How many spectacular investment opportunities have you received from TV? They have 20,000 explanations for why something has already occurred, rather than what will happen in the future. You can’t make money on what has already happened.
Cook: We recommend people put 10% of their net worth in silver. Do you agree?
Butler: At least. That’s conservative.
Cook: Do you have a specific silver recommendation?
Butler: I don’t say it should be your only silver investment, but I think everyone should own U.S. Silver Eagles, either by the box (500 coins) or the tube (20 coins). Buy them for yourself, your children, your grandchildren. And if you give a box to a child or grandchild, make them agree not to sell them unless an emergency arises, but pass them on to their kids. I got that from Izzy. Put them away and forget about selling them for a long time. I don’t care if you have one thousand dollars invested in silver or 50 million dollars, you must own some Eagles.
Cook: Doesn’t Izzy think Eagles will be discontinued some day?
Butler: Yes, and that will result in a premium to the Eagles once that happens. But, there are so many reasons, besides that, to own Eagles.
Cook: Why should people buy silver now?
Butler: Because it is incredibly undervalued. The manipulation that I write about artificially depresses the price. Less than 1% of the world investing population has even the slightest clue about the real silver story and its rarity. That guarantees massive investment buying at some point in the future. It is a vital and strategic material that the world will demand in ever-increasing quantities. At the same time, there is less of it in existence than in hundreds of years, guaranteeing an industrial shortage. It is the only industrial commodity that is also a widely known investment asset. Finally, there exists a short position, through derivatives and unbacked silver certificates, measured in the billions of ounces that can’t possibly be resolved without a price explosion.
By: James Cook & Theodore Butler
-- Posted 6 November, 2007
Cook: Any chance the big gold and silver short sellers will be overrun here and send prices to the moon?
Butler: There’s always a chance of that. And while that chance is perhaps greater than before, given the general stress that banks and dealers are under due to the credit crisis, and the sheer size of the gold short position, it’s certainly not guaranteed.
Cook: Care to lay odds on it?
Butler: Not really, as that would be pure speculation on my part. The truth is that no one knows how it will turn out short term.
Cook: What do you know?
Butler: The COMEX gold short position has grown to unprecedented extreme levels, while the silver short position hasn’t grown at the same pace recently.
Cook: Is the gold short position now larger than the silver short position?
Butler: Good heavens, no. I can’t imagine that ever happening, The short position in silver is so extremely large that nothing comes close to it. Usually, the silver short position grows faster, as prices move higher, than gold, and then gold catches up. This time it’s been different.
Cook: What happens to the price when they get overrun?
Butler: You never get tired of asking me that question. Of course, prices will explode and run rampant to the upside.
Cook: Now, let’s assume the price is running up. What do the big industrial users do?
Butler: They become alarmed. Some will panic and begin to build inventories of physical metal. That will deny other users the material they need to sustain operations, inducing more panic buying.
Cook: Now we really have a roaring bull and all of a sudden everyone wants to own silver. What goes on with the billion ounces sold by banks and brokerage firms you say doesn’t exist?
Butler: At some point, and no one knows what that price point is, they will also look to protect themselves and move to limit their growing losses. I don’t think they will try to buy physical silver, but rather some type of silver paper derivatives to hedge to the upside.
Cook: Will that hype the price?
Butler: Enough new short sellers will not exist to allow these banks and brokerages to cover without adding further upside pressure to the price of silver.
Cook: You are describing a series of different forces converging to buy silver at higher and higher prices. How high is the question we all want answered?
Butler: Look, I know what you want. But throwing out numbers to shock people is not my game. I’m an analyst and what I am trying to convey is the unusual and unique set of circumstances that exist in silver that must result, at some point, in much higher prices than most can even imagine – in the hundreds of dollars per ounce.
Cook: This silver price rise is going to be a big problem for a lot of people.
Butler: Exactly. I think it’s important to put all this into proper perspective. Recently, my good friend, and mentor, Izzy has been talking about something that is quite profound.
Cook: What’s that?
Butler: What we have in silver is a material problem, not a money problem. Most problems we have in the world currently are money problems. The credit crisis, the housing situation, the dollar, even the gold short position are money problems. At some price and for some amount of money, these problems can be solved. Not so in silver.
Cook: Money won’t do it?
Butler: There’s not enough physical silver around to allow the problem to be solved. This makes the silver short problem unique among all the problems in the world.
Cook: Is the short position in gold similar to the short position in silver?
Butler: As large as the short position is in gold, it’s not more than 100 million ounces. In dollar terms, that’s $80 billion, but that’s only a couple of percent of the gold known to exist.
Cook: Compare that to silver.
Butler: The silver total short position, including the COMEX, forward selling and the unbacked silver certificates issued by banks and brokerages, runs into the billions of ounces. Call it 2 billion ounces. In dollar terms, it’s less than $30 billion. But in physical ounces, it is double or triple the total of all the silver that exists above ground. Where gold has a short position equal to 2% of all the gold in existence, silver has a short position of 200% to 300% of all the silver bullion that exists. That means that the silver short position, in physical ounces, is a hundred times or more larger than the gold short position.
Cook: So, if the big shorts can’t come up with the physical silver necessary to bail them out, wouldn’t the price have to go much higher than anybody currently contemplates?
Butler: That’s true, but it’s much more than that. Izzy’s point is that it’s not just a question of how high the price goes. There isn’t enough silver available to cover the shorts because the physical material just doesn’t exist in the quantities sold short. I admit, this is a concept that is difficult to understand.
Cook: If things blow up in the silver market the way you predict, I wouldn’t want my silver overseas and I wouldn’t want it commingled with other people’s silver. Do you see a lot of financial failures coming out of this silver saga?
Butler: I don’t see how defaults can be avoided.
Cook: Why hasn’t silver gone up at the same rate as gold recently?
Butler: It has to do with paper trading on the COMEX, and I think it would be a mistake to read too much into short term price movements.
Cook: You would have thought the physical shortage you often talk about would begin to appear in the price. Why hasn’t it?
Butler: You keep asking me the same question in different terms. I keep answering that the price is manipulated by the big concentrated shorts. Put things in perspective. If I told you a few years ago that the price would be double or triple, you’d be kissing me.
Cook: We haven’t talked much lately about Asian demand. China, India and Indonesia have a population of 3 billion, about ten times more people than the U.S. Those economies are taking off. How many ounces of silver would you guess they consume annually?
Butler: Rather than think of it in terms of how many millions of ounces, I think in terms of the rate of growth in consumption. For all raw materials and natural resources, the rate of increase in the rate of consumption in Asia is phenomenal.
Cook: What about investment demand from these countries? As these Asian people get richer, aren’t they historically attuned to owning silver?
Butler: Yes.
Cook: You’ve said silver is less plentiful than gold. That claim is so outlandish that I don’t think anybody grasps it fully. How can gold be fifty times more valuable than silver if there’s less silver, and how can that be true if the industrial demand for silver is much greater than gold?
Butler: Many claim that it’s outlandish to say that silver is rarer than gold, but you won’t find anyone who can prove otherwise. Some will make up complicated stories, but no one can show you there exists more silver than gold. And just to be clear, I’m talking about bullion and bullion-equivalent material, not teapots or necklaces on Indian brides.
Cook: The gold bugs don’t seem to be listening.
Butler: They will eventually. Gold bugs are generally very intelligent people and that includes many of my friends. They’re smart enough to grasp this rarity issue.
Cook: How much silver was there above ground one hundred years ago?
Butler: My research indicates about 12 billion ounces of silver and about one billion ounces of gold.
Cook: And today?
Butler: Almost the reverse – one billion ounces of silver and five billion ounces of gold.
Cook: How can that be?
Butler: We consume silver while we accumulate gold.
Cook: Is the known silver literally being used up?
Butler: Wrong tense, it has been literally used up.
Cook: Disappearing from earth?
Butler: In practical terms yes. It’s not vaporized, but has been put into a form that is largely non-recoverable. Or, at the very least, unrecoverable at anything but super high prices.
Cook: It sounds like we’re going to have to find substitutes for silver. Agree?
Butler: Sure, that’s a function of the free market. But, given silver’s unique properties, new uses keep popping up, so net substitution or falling demand becomes doubtful.
Cook: You are suggesting that silver offers one of the most spectacular profit opportunities in history. How come I can listen all day to financial TV and not hear a word about silver?
Butler: Ask them, not me. How many spectacular investment opportunities have you received from TV? They have 20,000 explanations for why something has already occurred, rather than what will happen in the future. You can’t make money on what has already happened.
Cook: We recommend people put 10% of their net worth in silver. Do you agree?
Butler: At least. That’s conservative.
Cook: Do you have a specific silver recommendation?
Butler: I don’t say it should be your only silver investment, but I think everyone should own U.S. Silver Eagles, either by the box (500 coins) or the tube (20 coins). Buy them for yourself, your children, your grandchildren. And if you give a box to a child or grandchild, make them agree not to sell them unless an emergency arises, but pass them on to their kids. I got that from Izzy. Put them away and forget about selling them for a long time. I don’t care if you have one thousand dollars invested in silver or 50 million dollars, you must own some Eagles.
Cook: Doesn’t Izzy think Eagles will be discontinued some day?
Butler: Yes, and that will result in a premium to the Eagles once that happens. But, there are so many reasons, besides that, to own Eagles.
Cook: Why should people buy silver now?
Butler: Because it is incredibly undervalued. The manipulation that I write about artificially depresses the price. Less than 1% of the world investing population has even the slightest clue about the real silver story and its rarity. That guarantees massive investment buying at some point in the future. It is a vital and strategic material that the world will demand in ever-increasing quantities. At the same time, there is less of it in existence than in hundreds of years, guaranteeing an industrial shortage. It is the only industrial commodity that is also a widely known investment asset. Finally, there exists a short position, through derivatives and unbacked silver certificates, measured in the billions of ounces that can’t possibly be resolved without a price explosion.
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