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Refuting Ted Butler’s criticism

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Published : July 18th, 2019
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Following last Thursday’s article on silver (A whale is accumulating silver futures), Ted Butler, an analyst who specifically follows silver futures on Comex, responded in an article posted on, entitled “Wrong Whale”.

I have decided I must refute his allegation that what I wrote is factually incorrect. The problem right from the start is there are very few facts to go on, something which I made clear in my article. In the absence of hard facts, it therefore amounts to one conspiracy theorist’s view against another’s. The difference is that in my article, for the avoidance of doubt I clearly admitted this role for myself while Butler does not.

It is also important to understand that the real market for silver derivatives is in London forwards, which has only recently started to offer end-of-day clearing and vaulting figures. As I wrote in my article, looking at Comex is like observing the dog’s tail and not seeing the dog.

There may have been things I could have emphasised more. For example, the whale’s dealings on Comex are entirely financial in US dollars involving hedging only, with physical deliveries not a factor. This is why I concluded that the Peoples’ Bank of China was likely to be the whale, representing China’s government-owned and controlled processers and refiners. I could have stated that the PBOC is likely to have used a special purpose vehicle to accumulate long positions, concealing its true identity.

With the larger market in London, we mainly see a significant element of displacement activity on Comex. I can think of no other entity who might be large enough, outside some very large hedge funds, who can take a position, directly or indirectly in 20% of Comex’s open interest in the silver contract.

I could have emphasised more that the consequence of selling silver for forward settlement in London is likely to be reflected in bullion banks covering their matching forward purchases by selling Comex contracts. This would have changed when the whale decided to go long in London, when Swap dealers on Comex would in turn add to their longs.

I could have also discussed the implications of Swap dealers as price-takers by going short, and turning into price-makers by going long. But I had to stop somewhere, before my speculative argument was drowned in unnecessary noise.

What follows is extracts from Butlers article, followed by my comments. Obviously, TB is Butler, and AM is me.

The response to Ted Butler’s points


The 4 big concentrated silver longs, which I have been writing about for nearly a month, further reduced their net long position by 3882 contracts to 62,707 contracts. The only reporting category to have liquidated enough (or any real) number of contracts in the reporting week were managed money traders, proving conclusively that managed money traders held a significant percentage of the very strange concentrated net long position in COMEX silver.


Not true. Producers merchants reduced their shorts by 4,746 as well. The swaps reduced their shorts by 1,943, which with the fall in OI of 2,731 account for a fall of 4,674. You cannot with certainly attribute the reduction of the four largest concentrated longs to any one of the other COT categories just because the figures look similar.


Macleod holds, among other things, that the concentrated long position is mostly (or exclusively held) by commercials and not managed money traders. That’s false on its face.


True. But I also described Comex as being no more than the tail on the dog, with LBMA forwards being the larger market by far. It is more than likely silver was sold forward on that market by our whale, and some of the shorts on the LBMA reappeared in the Swaps category on Comex as an increase in shorts. When our whale turned buyer, its dealings in London would be partly reflected by an increase in the Swaps longs on Comex. The extent of this transfer depends on trading book positions at the bullion banks, something neither of us can know.

The problem all silver analysts face is you can analyse COT figures to death, but they are only a small part of the story and at best you will probably see displacement activity.


Since May 28 (all COT dates) the concentrated silver long position grew by nearly 18,000 contracts from 49,614 contracts to 67,328 contracts on June 25 (to coincide with Macleod’s article). Over that time the managed money traders bought a total of 59,930 net silver contracts. Over that same period, the commercials SOLD 53,678 net silver contracts. Unless there’s a new math being deployed here, the sharp increase in the concentrated long position was very unlikely to have been caused by commercials.


25th June did not coincide with my article: I used 2nd July’s numbers, but no matter. I note that in his first calculation at 67,328 contracts Butler cites the Largest Four Concentrated Longs only, when the Largest Eights at 85,649 contracts is the relevant figure. He then compares his long-only number with longs net of shorts for the Managed Money category to arrive at 59,930 net silver contracts. This is clearly incorrect.

He should compare only the change in Managed Money longs with the number for the change in Concentrated Longs for the Large Eight. The corrected figure is an increase of 30,030, not 59,930. On the same basis, Commercials increased their shorts by 46,687, of which 30,861 was the increase in Swap shorts. The increase in Swap shorts roughly matched the increase in Managed Money longs, as one would expect.

For Comex silver these positions are not far above neutral on the overbought scale. If our whale is in the Managed Money category, the others in the category would be net short anything up to 25,000 contracts. Unlikely, when gold has shot up $180 in the period under consideration. By inflating the numbers to 59,930 and 53,678, this point gets lost.

Butler appears to have selected figures solely for the purpose of supporting his contention that the whale is not a commercial, but in the Managed Money category (see below). His is the new maths.


I have stipulated all along that there might be a commercial trader in the ranks of the concentrated long, but clearly at least two and most likely three of the four big silver longs are managed money traders. Plus this week’s exclusive long liquidation by the managed money traders and the concurrent reduction in the concentrated long position (nearly matching contract for contract) further confirms that Macleod’s basic premise is fundamentally incorrect. In addition, the concentrated long position grew the most when silver penetrated its moving averages to the upside and shrank when the moving averages were penetrated to the downside.


This is the crux of Butler’s argument. He believes two or most likely three of the large concentrated longs are managed money traders, and the other a commercial. As I argue above, if this is the case, then the other Managed Money traders would have to be net short, possibly to a record extent. In the current market climate, this is most unlikely, as I stated in my original article.

It should also be noted that a reduction in the Concentrated Long position cannot be attributed to any one trader or trader category, as I pointed out in my first response above. The contraction of open interest and the fall in Swaps shorts could equally account for the concurrent reduction Butler refers to.


And here’s an amended note based upon input from a subscriber after I published Saturday’s review. Alex pointed out that Macleod stated that the big commercial silver long held 50,000 of the 62,000 to 66,000 contracts held by the 4 big longs. That’s preposterous on a mathematical basis for two reasons. One, it would leave too few remaining contracts to be assigned to the three remaining longs. Second, the only commercial category for a big long to exist would be the Swap Dealer category and the total gross long position in that category has barely been above 50,000 contracts over the past few months – making it impossible for one trader to hold that many net contracts.


I did not state the big commercial long held 50,000 contracts held by the four big longs. I wrote the following: “We can only guesstimate its size. However, if we assume that the other three largest trades are short in tune with the others, our long trader, our whale, is very long indeed. The long position probably began in March 2017, when collectively the large four were net short 39,215 contracts. This is marked by the up arrow in Chart 1, where the trend reversed. If we take that as our starting point, we can see that as of 2 July (the most recent COT figures) the swing is nearly 50,000 contracts.” I went on to say it was an indication of the long position of our large trader.

Furthermore, I did not restrict my comment to the large four, whose long contracts numbered 67,328 contracts on the date Butler picked for his numbers. The large eight actually held 85,649 long contracts. Later in my article I suggested China had covered roughly one year’s silver imports by going long the equivalent of 43,000 Comex contracts. Note the word “equivalent”, because an unknown quantity of that cover is likely to reside in London forwards, some of which may be hedged into Comex in the form of Swap Longs.

The mistake Butler appears to make is not to read carefully enough what I wrote, and to ignore the London market’s role in silver derivatives, when it is in fact far larger and more liquid than Comex.


And I had to laugh at the explanation that mining companies hedged dore and that accounted for big swings in COMEX short positions. First, there is no reporting by public companies of COMEX hedging and even if there was, the same amount of ore is taken out of the ground and converted into metal every single day. Mining is not like growing crops when the harvest comes in at once, it’s a 24/7, 365 day operation, meaning if Dore’ was being hedged the hedges would be lifted when metal was produced, which takes weeks.


This was not what I said. In my speculation, I explained that it was JPMorgan that hedged its client’s silver purchases in the form of both assessed silver contents of doré and imported base metal ores with silver content. China’s annual imports of both doré and the silver content of base metal ores are the equivalent of 43,000 Comex contracts, as I stated above.


I’m sick and tired about hearing how JPMorgan is acting on China’s behalf, a favorite of the whack- job tin-foil hat conspiracists.  For one thing, would that make the manipulation run by JPMorgan any less illegal? Even if JPMorgan was manipulating prices in its role as the big silver and gold COMEX short for the benefit of a large client, how would that make the manipulation kosher? All it would add are charges of treason against JPM for benefitting a foreign nation over the US. But the real proof that JPMorgan is in it for its own benefit is because that’s how these boyz roll.  JPMorgan putting the interests of its clients (any client) above its own has to be a joke. When has that ever occurred?


In this comment Butler reveals his visceral loathing of JPMorgan, casting them as guilty of multiple crimes. Furthermore, if as he states the Large Four Concentrated Longs include two or most likely three traders in the Managed Money category, the villain cannot be JPMorgan.

Clearly, he cannot accept that JPMorgan is acting in the interests of its client as a broker should. With respect to her 2012 statement that JPMorgan did not take directional positions for itself, it seems to me he is calling Blythe Masters a barefaced liar. I have never met Masters, but I have met a number of professionals of similar seniority in the financial services industry, some of which I would personally deem to be untrustworthy. But never, I repeat never, was one of them stupid enough to perjure themselves in the manner Butler implies. I did comment that Masters had upset conspiracy theorists with her statement, and from his comments here, Butler seems to be in their number.


Finally, I would have preferred Macleod use a different term than “whale” because the last time that was used in connection with JPM was in the case of the London Whale, which as I recall didn’t end so peachy for JPMorgan. About the only redeeming feature of the article is that it correctly portrayed JPMorgan as the big silver kingpin (but for all the wrong reasons). You asked, I answered. The purpose here was not to flame anyone, but to set the record straight.


I used the term “whale” deliberately, because of the connection. Far from setting the record straight, Butler appears to offer little more than his own guesses, suppositions and accusations of wrongdoing on Comex. I hope those that read my piece on the matter will note that I was also guessing and supposing. Unlike Butler, I have a sneaking admiration for JPMorgan’s apparent professionalism in acting for a very important client. I may be wrong in my whack-job tin-foil hat conspiracy, but in my article, I made it clear it was my conspiracy theory and no one else’s.

I leave it to the reader to decide which of us is the greater whack-job tin-foil conspirator.

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And the whack job tin foil conspirator award ( by a huge margin) goes guessed it Ted Butler.

Congratulations Ted, an outstanding performance!
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And the whack job tin foil conspirator award ( by a huge margin) goes guessed it Ted Butler. Congratulations Ted, an outstanding performance! Read more
S W. - 7/23/2019 at 8:18 PM GMT
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