Ted Butler: The Silver Nightmare Will Be Over Soon

The argument for a near-term monster rally
Halloween couldn’t have been more terrifying for silver investors. The gray metal cracked under $16/oz on Friday, a price not seen for nearly half a decade.
For years now, it’s seemed like silver was beaten up so badly its price couldn’t go lower. But then it would.
Why has silver been beaten down so badly? (now down 2/3 compared to it’s high in late 2011). And will it ever see brighter days again?
This weekend, Chris has a long discussion with silver expert Ted Butler on the real culprit behind the wild price slams that have plagued silver: unfairly concentrated positions within the derivatives market:
You have to sit back and try and drill down to the cause of what’s going on. Now, the actions by the Bank of Japan and the actions of our own Central Bank have basically been to inflate all investment assets such as bonds, stocks, real estate. And the ironic thing is that in the past whenever we’ve gone through this asset inflation mode , gold and silver and a variety of commodities have always participated. It stands out this time that, contrary to the movement and all other assets, that gold and silver have been particularly weak.
The only explanation for why this is so is that we’ve developed, not just in gold and silver but in all the COMEX and NYMEX metals — copper, platinum, palladium, gold and silver, even items like crude oil and even into the grains — we’ve developed a mechanism that’s so distorted it’s like we’re allowing the inmates to run the asylum. In other words, if you’re looking for the specific cause for why gold and silver have been particularly weak over the last couple of days or any other time period, you can trace it directly to the derivatives market. Specifically the COMEX. There’s such a large volume and it’s not just trading volume, it’s positioning. The positioning is so extreme in these markets and at such a large scale that it actually becomes the tail that wags the dog.
We should remember that derivatives (which futures contracts on gold and silver traded on theCOMEX are classified as) are supposed to be derived from the real supply/demand fundamentals of any commodity. And that’s supposed to kind of follow what developments there are in the real world of supply and demand. That’s been distorted. That’s not longer the case.

This post was published at PeakProsperity on Saturday, November 1, 2014,.