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(Note from James
Cook, President of Investment Rarities. As has been our policy, we wish to
include a brief disclaimer professing neutrality on Mr..
Butlers
sometimes controversial views. The following remarks are exclusively his
opinions.)
I am going to
speak as clearly and carefully as I can, about an organization that every
silver investor should be aware of, the Silver Users Association (SUA). My
comments will strike some as extreme, but this is exactly how I see it. I
will attempt to convince you, once again, that real
silver is a great opportunity. I will try to show you how, even the Silver
Users Association, the arch-enemy of higher silver prices, is really saying
buy real silver now.
First, let me
describe the Silver Users Association in their own words, then
I’ll give you my interpretation of who they actually are. From their
web site (www.silverusersassociation.org), we are told that, "The Silver
Users Association is a non-profit organization that was established in 1947
to represent the interests of companies that make, sell and distribute
products and services in which silver is an essential component. The
Association's members employ more than 200,000 workers and process 80% of all
silver used in the United
States. Members include representatives
from the photographic, electronic, silverware, mirror and jewelry industries,
producers of semi-fabricated and industrial products, and trading and service
organizations responding to member needs." The description goes on to
present the SUA’s Mission Statement
and list their Objectives. Here are some of their objectives (again, off
their web site, in their own words) - "Our objectives are to:
- Increase the return of secondary silver
supplies to the market;
- Encourage the sale of surplus government
silver stocks in amounts at least equal to the silver used in coinage;
- Oppose the purchase of silver for use by
the US
Mint in coinage and/or commemoratives;
- Cooperate with appropriate government
agencies to reduce excesses in silver speculation;"
The Silver Users
Association’s web site goes on to list its membership, and the names of
27 companies, including some pretty well-known household names. Like Eastman
Kodak, du Pont, Union Carbide, Engelhard, and Tiffany. Pretty impressive.
Pretty
impressive, indeed. Now let me give you my description of the Silver Users
Association. I’m not about to beat around the bush. The SUA is a
dubious, manipulative organization, whose sole purpose is to artificially
depress the price of silver. Since I don’t intend to be sued for libel,
allow me to explain just how I could make such an outrageous statement. My
only defense against libel is that I am telling the truth. Both the SUA and
you, the reader, can decide if I’ve made my case.
First, let me
say that this is a separate issue from leasing and the short position in
silver (although I believe some members of the SUA do, in fact, lease
silver). I am introducing a completely new topic on silver in keeping with my
public record of viewing the metals from a different perspective. Also, in
the interest of full disclosure, I did petition the US Department
of Justice about ten years ago, to investigate my allegations of anti-trust
violations by the SUA and its members. Unfortunately, the DOJ declined to
investigate. Maybe that will change in the future.
As usual, I will
call on you to utilize your common sense and logic. What is a commodity users
association? I mean, what could possibly be a common denominator between
otherwise disparate corporations other than conspiring for lower prices for a
thing they commonly use? They are certainly not going to promote the use of a
product and drive up the price because that would hurt them. No, they are not
going to try to engineer higher price. Such a group could only have the
highly questionable objective of attempting to artificially manipulate the
market, through word and deed. Think it through. We all know that if a group
of commodity producers got together to discuss their commodity, any talk or
plans to interfere with the normal price or with supply and demand would be
highly illegal. A business cannot get together with competitors to set or
manipulate prices. For example, recently the famous New York auction house, Sotheby’s
got into very hot water for agreeing with competitor Christies to charge the
same commissions. The president resigned and the Feds were planning
indictments.
Do you think the
law would distinguish between a group of commodity producers, and a group of
commodity consumers like the silver users? I don’t think so. Go to the
Silver Users Association web site, or read the quotes above, and ask yourself
if their own statements don’t indicate that their objective is to
interfere with the silver market and keep the price low. What else does this
users association do? What else is their purpose?
If you still
don’t see that there is something wrong about a select group of big
commodity users forming an organization to influence the market, ask yourself
why are there no other commodity user groups? I was
born in the same year as the SUA was formed but I’ve only been
following them for maybe, 20 years. Even though I have a commodity background
that goes back 30 years (starting at Merrill Lynch), I have yet to uncover
another commodity users group. There is no soybean users association. Same
for gold, copper, cattle, or any other commodity.
Why is that? Of course, we do have groups that exist on the producers side.
Like OPEC in oil, and DeBeers in diamonds. Our laws say those are illegal
cartels (although there is not much we can really do about these two
cartels). But the Silver Users Association is a US organization. The SUA may
be well connected but I can’t see how they are not illegal, according
to our code. They are a members-only club aimed at lowering prices rather
than raising them. Just like a producers group works to inflate the price, a
consumers group works to depress the price.
Imagine that
there was a way for a group of commodity users to illegally conspire to
interfere with a major commodity for their own selfish objectives; a cartel
of consumers of a single commodity. Such a consumers cartel would want the
lowest price for the commodity it uses and consumes. Now imagine what such a
consumers cartel would do to accomplish their objective. Let me ask in a
different way. If there were such a consumers cartel, would they behave any
differently from how the Silver Users Association behaves?
The chief
purpose of the Silver Users Association, when it was formed 54 years ago, was
to lobby and convince the US Government to dispose of its immense stockpile
of silver, as much as 4 billion ounces of silver, at as favorable a price as
possible. Of course, when I say "favorable", I’m talking
about as low a price as possible to the members of the SUA. The prices were
decidedly "unfavorable" to the owners of that silver, the citizens
of the United States. But, in any event, the SUA was successful beyond
imagination. In my opinion they conspired to hold down prices and
that’s an anti-trust violation. The SUA achieved an almost impossible
feat. They made off with the world’s largest known stockpile of silver.
Let’s see - the US Government had billions of ounces of silver the year
the SUA was formed, and 54 years later, the US announced it will have no
silver left this year. That is truly remarkable. And the best part (or worst
part, if you are a regular citizen), is that the SUA got a real
"steal" of a price on that silver, roughly one dollar an ounce.
Slick and successful would be mild words when judging the accomplishments of
the Silver Users Association. So would price fixing.
If you think
I’m bitter about what role the SUA played in the unnecessary forced
disposal of our nation’s wealth, you would be mistaken. I certainly was
bitter at one time, but that was then, and this is now. Now, the Silver Users
Association is the real silver investor’s best friend. No, I
haven’t lost my mind. Now, I am glad the SUA exists. Very glad. And, if
you invest in silver, you should be glad, too. Let me tell you why.
It’s really very simple. If the United States Government had any
appreciable amount of silver left, the SUA would be a threat. Because sure as
shooting, they would find a way to get the US to cough up the silver. But, it
is precisely because the US has no silver left that the Silver Users
Association can’t cause a government sell-off. It took 54 years, but
there will be no further silver disposals from Uncle Sam. From now on, no
matter what the SUA says or does, the US Government won’t be selling
any silver. We’re at the bottom of the barrel.
In fact, not
only is the Silver Users Association the best friend of the real silver
investor, it has become the worst enemy of the very corporations it was
designed to help - its own members. You see, by engineering the
government’s complete liquidation of its taxpayer-owned silver
inventory, the SUA has created a monster problem for its members. By
contributing mightily to the long term silver manipulation, SUA members have
become addicted to cheap and plentiful silver. Now that the
Government’s cupboards are bare, it is a bad time to be counting on
continued low silver prices. The SUA has fouled its own waters. If they
hadn’t lobbied so successfully to eradicate the US’s silver, we
would have had much higher silver prices all along. Then the magic of the
free market and the true laws of supply and demand would have worked to
ensure a steady long-term supply, while the citizens’ silver would have
been preserved. The SUA will reap what it has sown.
But there is
still much that the Silver Users Association can say or do, and it spells it
out quite clearly on its web site. It is what the SUA says it intends to do
now, that makes them such a great friend to the real silver investor.
I’m not kidding. Let me explain by pointing out that of all the
commodities the world depends upon, there is only one that even has a users
association. That means silver’s pretty special to even have its own
users association. Please think about that for a moment. Silver is so
special, that it caused leading companies to band together to take special
measures concerning its price and supply. I wonder if Kodak and du Pont and
Tiffany have a users association for their common consumption of electricity
or natural gas. Not even gold rates its own user association. Just silver.
And this silver association principally functions to keep a lid on the silver
price because if and when it goes up it’s going to cost the silver
users a lot more. They don’t want that to happen in the worst way
because they know they can’t substitute for silver. Seems to me that
would be all you need to know about whether silver is special enough to own.
Since the SUA
can’t illegally lobby the US Government to release silver anymore, it
has to do the next best thing to keep silver cheap for its members. As it
states on its web site, the Silver Users Association intends to continue to
lobby the government on other matters. Chief among its efforts, will be to
stay atop the price of silver. If silver shows any sign of bullish life, the
SUA says clearly that it will do what it can to influence the price back
down. The SUA, basically, says it will petition government agencies to keep
the price down. This is no wild accusation on my part, this is what they do.
The only question is how well they can do what they do. Here, I
wouldn’t underestimate them. Instead, I would pay heed to what the
Silver Users Association intends to do. The crazy thing is that the SUA is
saying exactly what I have been saying. That is, buy real physical silver
rather than paper.
Of course, it is
not the intent of the Silver Users Association to urge regular investors to
buy real physical silver, but that is the message that comes through, loud
and clear. Here’s why. On any silver price rise, the SUA will be all
over the Commodity Futures Trading Commission (CFTC), to pressure the COMEX
to curb the "excessive speculation". According to the Silver Users
Association, silver only rises due to "excessive speculation", and
never because of legitimate market fundamentals. Where will the SUA’s
attention be focused? At the only place it can be focused – on the
paper traders on the COMEX. Or, more correctly, on the paper traders holding
long positions. They are always the culprit. Even though we are at the lowest
inflation adjusted price for silver in 5000 years, the SUA will look to
assign blame for any price increase on paper silver investors. Trust me - you
can take this one to the bank.
Now that
doesn’t mean all paper contracts will go bad, but if you know someone
is likely to connive to change the rules in a price rise (the exchanges
don’t need a lot of encouragement anyway), it’s something you
want to be aware of. More importantly, it should open your eyes to the
attraction of real physical silver. For the umpteenth time – rules can
only be changed on paper contracts, not physicals. That is the chief purpose
of holding real silver metal – once you have it, it’s yours. You
are beyond paper rule changes. This is why I have been harping for folks to
take the initiative and secure physical silver in our all-paper world. Sure
it’s easier to stay all paper. But just like it’s easier to buy
paper silver, it’s a lot easier to change the rules. And, let’s
be frank, the only rule that will be changed, basically, will be the rules
concerning converting paper contracts into physical delivery. They will
change the rules regarding taking delivery on a silver commodities contract
just like they did with palladium. This is all they can do - prevent folks
from converting their paper contracts into physical. This is always the
common denominator to most of the ordinary rule changes. As I said, this is
what was behind the TOCOM and NYMEX extraordinary rule changes in palladium.
Let me be as
clear as I can be. If there is an attack on silver longs, when prices
increase, that attack will have to center on paper longs, not physical longs.
They won’t come to your house to take your physical silver. If you own
fully paid-for silver, you have no sweat. Any other way - big sweat.
That’s why I say, buy the real deal.
In summary,
silver is a vital commodity in a strong physical deficit, with disappearing
inventories. Silver is afflicted by a cock-eyed "leasing" scam that
can’t be indefinitely maintained. It has a short position second to
none at the lowest real prices ever seen by man. Then we have an
organization, unique to itself, created primarily to hold the price down. But
even that organization has strongly affected silver in the most positive way
for the investor in physical silver because they kept silver cheap for too
long. If I had to sit down and make up these facts from scratch, I
don’t think I could do it. The fact is, that I haven’t made up
anything. That’s the incredible part. There are so many forces that
have combined to keep silver artificially cheap that it’s crazy. The
market forces that should have sent silver soaring in price have been mugged,
choked off and smothered. But silver can’t be held down much longer and
when the true market exerts itself it will snap back like a coiled spring.
Attempts to control prices always backfire and all the pent up fury of a
market artificially depressed ultimately explodes to restore the rightful
price and then some. The only conclusion, buy real silver right now.
Theodore
Butler
www.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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