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when paper can't control prices

posted on Mar 24, 2009 08:11AM

this article is by israel friedman:

When Paper Can’t Control Prices

By Israel Friedman

(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades. He has written articles for us in the past. Investment Rarities does not necessarily endorse these views.)

A big wrongdoing crime is done daily by the institutions or individuals who are naked shorting stocks or futures contracts. If you are someone who sells what doesn’t belong to you, you would be in trouble with the law, but the naked sellers of securities do so without punishment. For instance, if you are shorting stocks, you get money up front from the sale. The only way these short sellers are forced to cover in stocks is when the company is taken over. In the futures market, it happens when the longs demand actual delivery. This scenario in futures can only happen only when a shortage hits the market.

In silver, two US banks have a short position of 154 million ounces of silver. Based upon my calculation they are capping the price by holding the major part of the short side of COMEX futures. I ask - do these big shorts know their risks in shorting silver? We learned from the past that the banks know only how to calculate near term profits and bonuses. But they always miscalculate risk, like in mortgage derivatives. Don’t look at me as crazy when I tell you that I think the exposure of the shorts will be $250 billion, with the two US banks holding a risk of $75 billion.

How do I calculate this exposure? This calculation is based upon $500 price for silver, and I say that the price of silver will not be less than the price of gold. I hope gold will be much higher than $500, as the price of silver will reflect that.

Silver world stocks are in very strong hands, spread among 250,000 to 350,00 small investors holding approx 500 to 600 million oz, in coins and bullion, averaging 2000 to 3000 oz per investor. These investors, who are mostly in the US, know why they are holding silver. I think you and I will benefit from your holdings of silver and those who have shorted silver will pay big.

Mr. Butler is fighting weekly to end the manipulation but isn’t successful yet. The shortage in silver will teach those who harmed the silver mining industry by holding the price down and discouraging exploration that their actions will add fuel to the fire.

In a shortage situation, when silver prices will advance by $3 to $5 daily, the shorts will accuse us of influencing investors to buy silver and causing a shortage. They will call us hoarders and other names. It will be very ironic that the shorts will try to blame the longs for buying what was so cheap. Then, it will be our turn to laugh at them. Trading on the COMEX is a sure path for losses. You are much better to take the margin money and just buy Eagles. One day you will be rewarded tremendously.

The dream of the gold investor is to have a gold standard, but I tell you before we have a gold standard, we will have a silver standard. That will come when people all over the world recognize that based upon rarity and supply/demand, silver has more value than gold.


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