COMEX Silver Cartel

November 16, 2000

Most of us understand what a cartel is, namely, a single entity or small group, acting in consort, for the designed purpose of imposing a price on a commodity different than what the free market may dictate. Prominent examples would include DeBeers in diamonds, and OPEC in oil. The purpose of this piece is not to debate the legality or nuances of cartels, but rather to establish that they do exist. But it is the unrecognized cartels that do the most harm, precisely because few are aware of their existence. One such cartel exists on the Commodity Exchange, Inc. (COMEX) silver market. The reason most people don't see it, is because the COMEX Silver Cartel is a short side cartel, unlike the long-side cartels that we are all familiar with. While DeBeers and OPEC work to lift the price of their products, the COMEX Silver Cartel works to lower the price of silver. Unfortunately, because of this general unawareness, the COMEX Cartel has been wildly successful in depressing the price of silver.

The basic definition of how a cartel works is having sufficient control, or dominance of a market, so as to be able to dictate the price of that market. In crude oil, OPEC controls roughly a third of total world production (25 million barrels per day versus 75 million bpd world production), but its dominance determines the price of all production. Sometimes, the oil price is low, and sometimes, like now, the price is high. But the price is always a function of how the cartel is behaving. (To simplify matters, I am intentionally ignoring current refining and transportation bottlenecks). OPEC's dominance is clearly visible. In silver, if you look in the right place, you will just as clearly see the COMEX Silver Cartel's dominance.

The right place to look for the existence of the silver cartel is in the Commodity Futures Trading Commission's weekly Commitments of Traders report, long form version ( ). For the most recent report, released Nov 13, for positions held as of Nov 7, you will see that 4 or less large traders hold a net short position equal to 32,000 contracts, or the equivalent of 160 million troy ounces of silver. (Long time readers know I have raised this issue before - see

While I still contend that COMEX silver market is, overall, the largest naked short position that the world has ever seen in prior articles, I am only interested here, in the 160 million ounce net short position by the 4 or less traders who make up the COMEX Silver Cartel. First off, 4 or less traders is an intentionally ambiguous term, ostensibly designed to shield the identity and market position of specific traders, or a specific trader. 4 or less, could mean 1 or 2, effectively. Can you imagine that - that the bulk of this position is held by only 1 or 2 traders? Put that concentrated 160 million ounce short position into context. It is an amount greater than the annual combined production of the two largest producing countries, Mexico and Peru. It equals 30 % of total annual world mine production. It is 37% of the entire COMEX futures position, the world's largest precious metals exchange. It is greater than all the visible silver inventory in the world. How could such a position not have a cartel-like influence on price? The 4 or less traders (maybe 1 or 2) have a more dominant position in COMEX silver, as a percent of the market, than OPEC has in oil.

To be sure, at least OPEC produces a real product. The COMEX Silver Cartel, in all likelihood, deals only in paper. But sales are sales, even if they are unbacked short sales, in terms of price impact. But shorts are different, and someday the day of reckoning will arrive. Someday, the silver cartel will have to put up, or shut up. That day will be like no other. In this sense, the silver cartel has done, and will do, more harm to the rest of the world, than any cartel that has ever existed. That's because it has so distorted the silver market, that its aftershocks will be felt for decades.

The shocking thing about the uneconomically large and concentrated position of the COMEX Silver Cartel, is that its very existence and behavior is expressly forbidden by the Commodity Exchange Act (CEA). Let's face it - There's not much we can do about DeBeers or OPEC, save not buy their products. But the COMEX Silver Cartel operates with complete immunity, within the jurisdiction of the very laws it blatantly violates. What laws, you ask? Well, aside from the number one purpose of the CEA, namely, preventing price manipulation and disorderly market conditions (which are coming), there is the clear violation of position limit regulations. (And if there is any doubt that the COMEX Silver Cartel is manipulating the price down on silver - just imagine what the price would be if this concentrated short position didn't exist).

The position limit regulations, and the clear intent of those regulations, that the COMEX Silver Cartel are violating, are straight-forward. The CEA never intended for speculators to control a bigger position than the largest producers and consumers of a commodity. In fact, the larger real producers and consumers of a regulated commodity (the CEA specifies agricultural products and metals as regulated commodities) must apply for an exemption from position limits, in order to control a larger amount. Any exemption from the (speculative) position limits granted to a real producer or user of a commodity is capped at what amount that producer or user, actually makes or consumes, over a 12 month period of time. (As an aside, this is the aspect of commodity law that is violated by 'hedging' more than one years production).

Since the 4 or less traders in the COMEX Silver Cartel control a position greater than what entire countries produce in a year (forget individual companies), and the cartel's position is much greater than the total visible world inventory of silver, it is not probable that the cartel is not violating the intent and clear specifics of the CEA. A reasonable person might ask, how can this be? My answer would be that this outrageous situation exists because the two entities responsible for upholding commodity law, the CFTC and the COMEX, are not doing their job. The CFTC seems hell-bent on dismantling any regulation protecting the integrity of the markets, and the COMEX seems to cater to the desires of the cartel, to the clear detriment of its rank and file members. Between the CFTC and the COMEX, there has been a complete gutting of position limits on silver. The CEA is very clear - there must be position limits on silver. Just as clearly, the CFTC and the COMEX have ignored this requirement. For reference, please see . Of course, I would be completely wrong in my assertions, and will apologize publicly, if the CFTC or the COMEX will reveal that the members of the COMEX Silver Cartel are bona-fide hedgers, holding good delivery inventory or are hedging 12 month production.

Just to answer, in advance, any claims that I am ignoring the concentrated position on the long side of 22,000contracts (110 million ounces) held net by 4 or less traders (25.5% of total open interest), let me say this. It is normal behavior to buy an item depressed in price, it is not normal behavior to short such an item with abnormally large quantities. Besides, I don't think a reasonable person would suggest an upward manipulation in silver prices currently exists. And let me go one step further. If the concentrated long position is in violation of what the position limit regulations should be - make the big longs reduce their positions. Fair is fair.

But, no matter - let me offer, once again, a constructive solution to any potential problem. By first notice of delivery day, make the longs cough up the full cash value of their contracts, in order to guarantee the longs can fulfill their contract obligations. But make the shorts guarantee that they can fulfill their contract obligations - not with money, because that won't guarantee anything. Make the shorts show they have the goods, warehouse receipts, on first notice day. Level the playing field and end the manipulation by the cartel.

One thought in closing - I don't know how the members of the NYMEX/COMEX can tolerate this silver cartel. By allowing the cartel to exist, they are putting themselves in grave danger. Because they are all connected, via the clearinghouse, liability will not be limited to the cartel. All will be involved - it's the system. Better to confront and deal with the cartel before the moment of truth, than after, when it will be obvious to the whole world that there was a cartel and a manipulation.

When the day comes that real silver is not available for delivery on the COMEX, just like has occurred in NYMEX and TOCOM palladium, and defaults and extraordinary rule changes are the result, all NYMEX/COMEX members will be affected. It will not matter whether they were direct participants in the manipulation or not. The cartel will quickly fold financially and leave the mess for others to clean up. Certainly, no officer or director of the NYMEX/COMEX will be immune, as I have created a public record of continuous notification of the silver scam. Innocent investors and silver miners, who have been damaged by the COMEX Silver Cartel for over a decade, will have their day in court. It's a day long overdue.

Ted Butler

November 16, 2000

The word ‘silver’ originates from the Old English Anglo-Saxon word 'seolfor'