The following is a recent email exchange between a reader and Commissioner Bart Chilton. The last message is an email from me to the reader (with a copy to Commissioner Chilton). I have removed any personal identification of the reader. To my knowledge, the Commissioner sent this same response to a number of people who wrote to him. Main article follows the exchange.

From: John
To: Lukken, Walter; Dunn, Michael; Chilton, Bart; Sommers, Jill; Lavik, A. Roy; Obie, Stephen J.
Sent: Fri Dec 26 17:56:01 2008
Subject: Silver Short Concentration

Dear CFTC Personnel,

There continues to be an extraordinary "net short concentrated position" in the silver futures market. The COT report indicate that 2 large US Banks held short positions that total 25% of the annual silver supply. This pattern has been ongoing to a severe degree for the entire 2008 year and even years prior.

The 4 largest shorts in the Comex silver held a percentage of the market that was 3.7 times greater than the 4 largest long traders. The 4 largest shorts held a net 46% share of the market, verses a12.5% net long share of the 4 largest longs. No other market has close to this disparity.

If this were any other commodity, there would be serious investigations. With the recent happenings on Wall Street, an individual investor would think that the CFTC would be on top of situations like the one taking place in the silver market but apparently that is not the case.

I would appreciate a legitimate and intelligent response for my records.

Sincerely,

John

From: Chilton, Bart <BChilton@cftc.gov>
Date: Dec 27, 2008 6:43 AM
Subject: Re: Silver Short Concentration
To:

Thank you for contacting me regarding the silver. Like you, I am concerned about some of the things we have seen, and some of the things that appear to be troubling based upon data -- including CFTC data. I requested an investigation, which is ongoing. I have been briefed and believe that the investigators are making progress.

Some might think that simply because the CFTC Commitment of Traders (CoT) report contains certain data that there is obvious manipulation. I agree that the data raises serious question and our staff continues to investigate the matter. In fact, many silver investors-traders have been contacted in an effort to gain further insights. I would point out that the CoT report does not give net positions of traders. Therefore, it is possible, in fact likely, that larger traders may have short as well as long positions.

I am also convinced that there is a limited supply of available silver and that the cost for any available silver is relatively high. I believe the CFTC has not paid enough attention to this in the past.

Like you, I am anxious about moving forward. That said, I want the CFTC to get it right. I have no interest in an investigation that uses taxpayer dollars and isn't thorough.

I will be pleased to update you as best I can, given that this in an ongoing investigation.

Happy new year.

B

John,

Thanks for taking the time to write to the CFTC and for forwarding to me their response. First, Commissioner Chilton must be commended for his consistent efforts to communicate with those that write to him. He seems to be the only one who responds in a timely manner.

That said, I am troubled with certain aspects of his response. Commissioner Chilton does acknowledge that CFTC data raises serious questions, in fact, enough to prompt an investigation. Yet, the questions that have been raised, centering on the net short position of 25% of world silver mine production held by one or two U.S. banks, are quite simple and specific. Questions such as, what is the economic purpose of this concentrated position? Or why does this level of concentration exist only in silver? Or what would the price of silver be if this short position didn’t exist or was held by many traders and not just one or two banks? There is no need for a big taxpayer-funded investigation that has taken months so far, just direct answers to simple questions.

I am surprised that many silver investors-traders have been contacted in this matter, at all, since the allegations of manipulation center on one or two U.S. banks. Also surprising is that Commission staff has yet to contact me, although Commissioner Chilton has suggested this to me for more than a year. The CFTC has refused to meet with me for more than 20 years. This is the third investigation of silver by the Commission in less than five years, something that no other commodity has experienced. All three investigations originated as a result of me asking readers to contact the Commission. It would seem more efficient for them to discuss this with me than in running full-scale reviews.

I am particularly troubled that Commissioner Chilton is laying out the CFTC’s plan to slough off the clear proof of manipulation contained in their own data. Undoubtedly, he is getting this from staff. Their plan is to evade the simple questions on concentration by introducing unrelated peripheral issues. It doesn’t matter whether the big short position is backed by offsetting positions in other markets. The issue is concentration.

While I believe the big short position is "naked", that is beside the point. The allegations involve concentration and control, not the backing of the positions. Manipulation involves a controlling position and the ability and intent to influence prices. It doesn’t matter if positions are held in some other market. That will be just a convenient excuse for the CFTC to shirk its responsibilities. The CFTC doesn’t have jurisdiction in these other make-believe and non-transparent markets, they have jurisdiction in the market where the concentration exists, the COMEX. Besides, if the one or two U.S. banks holding the big COMEX short position are legitimately hedged, then why is the CFTC investigating at all and contacting many traders? Just release the proof and stop wasting taxpayer money on another useless and drawn-out investigation.

Finally, while I agree with Commissioner Chilton that the CFTC should be thorough and get it right, this alleged silver manipulation is a crime in progress. Since the investigation began in September, thousands of silver market investors and participants have been severely damaged by the artificial decline in price. When an innocent victim is being mugged on the street, the cop on the beat should stop the mugging first, and fill out the paper work afterwards. Someone should tell the CFTC that.

Ted Butler

Theodore Butler

Investmentrarities.com

(No one can safely predict the future and it’s possible that Israel Friedman’s Butler’s analysis will prove incorrect. Silver can go up, but silver can go down. It is up to you to read, analyze, and arrive at your own conclusions. Prudence requires we emphasize that precious metals may or may not prove to be suitable for your consideration.)

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