Ted Butler, independent US Silver Analyst gave silberinfo the following exclusive interview:
silberinfo:
Ted, since our last interview
of April 2007, the price of silver rose around 30%. What do you consider to
be the main reasons for this development?
Ted Butler:
There are so
many reasons, it’s hard to pick just one.
Among them would be the general institutional investment flow into commodities
and natural resources by the index funds and the silver ETFs
specifically, the continued demand for raw material from China and developing
countries, trading on the COMEX, and continued investor demand in physical
silver.
silberinfo:
Lately one can
hear a lot that the silver market is not in a supply deficit anymore. This is
also coming from some analysts that used to be very bullish on silver
earlier. What do you think about that, are they right or is this just another
attempt to manipulate the price of silver?
Ted Butler:
I look at it
differently. I think the old familiar structural deficit we became used to
over the past 60 years is temporarily over, but I don’t think
that’s necessarily bearish or an attempt to spread false information.
After all, commodity deficits can’t last forever. But I think we are
experiencing a new type of deficit caused by investment demand, only you
shouldn’t call it a deficit in normal commodity terms. But whatever you
call it, investment demand can have a profoundly bullish impact on price.
silberinfo:
What is your
opinion regarding the Silver Book of Virtual Metals/Fortis
Group? We are particularly interested in your opinion on the investment
demand and the demand for coinage.
Ted Butler:
I don’t
like to publicly criticise research by others, because we all gain by
listening to what others say. But I think the findings in this report were
very wide of the mark in terms of silver recovery by recycling, which I
believe they vastly overstated. The other point I would make, not just about
this particular report, but in general, is that any silver research that
doesn’t focus in on the concentrated net short position in COMEX silver
futures is missing what is the most critical factor for the silver price. I
am dumbstruck by how many smart people miss this factor.
As far as
investment demand, that’s the wild card. There is nothing more
potentially explosive to the price than a rush of investment demand. This is
especially true in silver, given the very small amount of available metal.
silberinfo:
Why do you think
there is so little written about the COMEX concentrated short position by
others?
Ted Butler:
I’m not
completely sure. It may be because it is hard for people to interpret or even
figure out the data, or it may be because, no matter how clear the evidence,
people just can’t conceive or accept that there is a major manipulation
taking place in full view of all market observers and regulators.
silberinfo:
You are
convinced that this is the central issue in silver?
Ted Butler:
Beyond a doubt.
I’ve felt that way for almost 25 years, and I am more convinced by the
day.
silberinfo:
silberinfo was advocating transparency and lists with the
numbers of the silver bars for the silver ETF of Zurich Cantonal Bank ZKB,
and now also Barclays started publishing lists, also because of you stood up
for it untiringly. Do you believe that all of the 160 million ounces silver are really stored at Barclays’?
Ted Butler:
Yes I do. You
have to give Barclays credit for listening to their silver investors. But you
give me perhaps too much credit. It was actually pretty easy. I wrote one
article, investors wrote to Barclays because of it, and Barclays agreed to do
the right thing and list the bars. That’s the way it should be in a
rational world. Too bad I can’t get that kind of logical and speedy
reaction from the COMEX or the CFTC on the concentrated short position.
silberinfo:
Lately in a few
new countries Gold ETFs have been set up. We think
that e.g. Dubai,
China
or India
could set up ETFs on silver soon. What is your
opinion on that, what are the possible effects and where could the physical
silver come from?
Ted Butler:
Any ETF that
buys real silver is bullish for the price. And that silver must come from the
same sources that other investors and industrial users now get their silver.
It’s just more demand that must be met.
silberinfo:
The USA
could be on the brink of going through a recession, if they are not already
in a recession. How will this affect the price of silver?
Ted Butler:
Perhaps less
than one might think at first.
silberinfo:
Don’t you
think that the economic slowdown could lead to a severe drop in industrial
silver consumption? What could offset this?
Ted Butler:
It depends on
how severe. But one thing that could offset the effects of a slowdown is that
it might stimulate increased investment demand at folks get worried.
That’s happened in past recessions over the past few decades. Silver
has a long history of doing well, price-wise, during economic recessions.
When bad economic conditions scare investors, many turn to gold and silver,
as assets that are no one else’s liability. With metal, there is no bankruptcy
or defaulting counter party risk. Provided, of course, that you own the
metal in the proper form. And because there is so little silver to invest in,
compared to gold, the impact on price can be very dramatic.
silberinfo:
What about the
supply side – not only VM/Fortis Group, but
also GFMS expect a big increase of silver production in the coming years,
because new copper mines and big gold/silver mines will go into production.
What do you think of that, could this affect the price of silver?
Ted Butler:
I don’t
deny the possibility of more mine production. I think increased silver supply
is largely built into the price already. And we have to be consistent here -
if we are going to worry about a severe economic slowdown, there will be
decreased demand for all industrial commodities, which will eventually impact
all base metal production and, in turn, byproduct
silver output.
silberinfo:
Last year you
told us, that the reason we are not facing a severe shortage of silver even
though most of the official silver stocks are depleted, is the silver that is
being transferred from the unknown category to the known category. Is that
still the main reason why e.g. the COMEX silver stocks are not yet empty, or
are there other silver sources (like an increase of silver production)
responsible too?
Ted Butler:
That’s
still true. Increases in COMEX inventory or the ETFs
are not as a result of sudden big surpluses, but rather from increased demand
and reflect the transfers from the unknown to known category. The important
point here is that while no one knows the exact amount remaining in the
unknown category, we do know that it is a finite amount and that these
transfers are draining whatever unknown inventory remains. I know it is
counter-intuitive, but increases in COMEX or ETF inventories are actually not
bearish at this point.
silberinfo:
The volatility
in the silver market is getting bigger and bigger. What is your
recommendation for investors that haven’t been in the silver market for
a long time?
Ted Butler:
You
haven’t seen anything yet, in my opinion. Volatility will only
increase. New investors should avoid margin or any borrowing to buy silver.
Either buy on dips or dollar cost average. Most
importantly, make sure you buy real silver, or get the serial numbers for any
1000 bars stored.
silberinfo:
What do you
think of the silver stocks right now? The share prices of a lot of producers
as well as explorers didn’t reflect on the higher prices of silver.
What do you think is the reason? Are they anticipating a correction of the
precious metals markets?
Ted Butler:
That’s a
tough question, and one that I intentionally tend to dance around, as you
know from past discussions. Some should do very well,
some won’t, due to a wide variety of reasons. Since I don’t want
to see anyone get hurt financially and because I value my reputation, I stick
to publicly recommending the safe, sure thing - real silver.
silberinfo:
What do you
think about the situation in Latin America, where more and
more countries are attempting to gain a better control on the mining sector?
Ted Butler:
No surprises to
date and that should continue. For many of these countries, it is their main
true wealth. To think they will allow it to be exploited by foreigners
without increasing compensation is naive.
silberinfo:
Recently China
categorized a lot of different metals as “strategically
important”. Silver hasn’t been a part of these up to now. Do you
think this could change soon?
Ted Butler:
Silver
doesn’t need an official label to make it strategically important.
It’s already a vital commodity, no matter what anyone calls it.
silberinfo:
Lately not only
the prices of Gold & Silver went up, also the price of Platinum literally
skyrocketed. What is your opinion on Platinum and Palladium?
Ted Butler:
I don’t
follow them as closely as I follow silver. Obviously, the power problems in South Africa
have had a big impact. But the PGMs increasing
sharply in price has a beneficial effect on silver,
in that it makes silver more valuable on a relative basis. If you told me a
few years ago that silver would climb as much as it has, and still be cheap
compared to almost everything else, I wouldn’t have believed you. Just
like I wouldn’t have believed that the concentrated short position
would be at record levels after such a price rise.
silberinfo:
Even though you
probably would like to avoid this question, your prediction for the price of
silver at the end of 2008 would interest us.
Ted Butler:
If I knew, or
thought I knew, I would tell you. But I don’t. I do know this - silver
is still grossly undervalued, because of its supply/demand fundamentals, its
relationship to their commodities and in light of the record concentrated
shore position. Someday, and I don’t know which day, those things may
no longer be true and silver may no longer be undervalued. But that day is
not today. Aside from potential short term sell-offs engineered by the big
shorts on the COMEX, silver still looks like the best long term investment.
silberinfo:
Ted, we thank
you for your kind answers!
© by silberinfo
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