By Melissa Pistilli – Exclusive to Silver Investing News

The recent landslide in the price of silver has some analysts like Theodore Butler of Silverseek crying foul. Butler and a few others are pointing fingers at concentrated commercial shorts on the COMEX.

Like Butler, Jason Hommel of Silver Stock Report and Mark O’Byrne of Gold and Silver Investments also believe there is something rotten in Denmark, and offer further proof by pointing out that dealer supplies of physical silver were barely existent while demand was still up.

Yesterday, Butler posted a scathing commentary on the recent “drastic” sell-off in silver, which, he concluded, was “further proof of an on-going manipulation to the downside” and ultimately “a crime.” Severe movements in price– like silver dropping far below its normal moving averages– “are likely to be intentional and not accidental,” he claimed. To come to this conclusion themselves, Butler says curious investors needed only a basic understanding of the workings of the futures market, and an investigation into the Commitment of Traders Report (COT) public data.

Although he cannot identify the concentrated commercial shorts by name, Butler believes the responsible parties had the profit motive and the skills to cause the sell-off. He also went one step further and chastised the senior management at NYMEX/COMEX, CFTC commissioners, and other high ranking employees for, as he claimed, their complicity and involvement in the manipulation.

Last Thursday, around 8pm EST, the price of silver took a near $1.50 nose dive. This kind of speed, Butler claimed, had never happened before in an overnight session. According to Butler, this was the work of the commercials. It was their business to know when the markets were least liquid and when many traders were absent. According to Butler, the least liquid times were the overnight sessions when few traders were present. In his opinion, the most illiquid time was around 8 pm EST.

Once an opportune time presented itself, they threw in some relatively small, but aggressively placed sell orders causing the price to fall, which led to sell-offs by under-margined longs and further price drops. Once that happened, the concentrated shorts stepped in to buy.

Analysts like Mark O’Byrne believe silver and gold “are extremely oversold.” The proof of this, they say, is in the current imbalance in the supply-demand ratio. Byrne, Butler, and Jason Hommel, among others, have drawn attention to the retail silver investment shortage. Byrne referred to it as “an unprecedented situation where large wholesalers and retailers are having difficulty keeping up with investment demand.” Some of these institutions were actually completely out of stock of silver American Eagles (1 ozt) and silver bars (1 ozt, 10 ozt and 100 ozt).

Sounding like some coke dealer in the middle of a Fed-induced drought, Hommel said, “Tulving is sold out … I have never seen that before. My guy in Rocklin is out. Amark is out. Mish in Menlo Park is out. Klaus in Denver is out. All those guys cannot find silver to buy from any other major dealer, and they are all very well connected in the industry.”

“Silver prices are dropping like a rock, down to $12.50/oz.,” said Butler. “Yet, none of my trusted, major, regular dealers have any silver to sell.” Butler pointed out a few indicators that silver was indeed experiencing a commodity shortage – the entire supply chain of dealers was sold out or low on inventories, and delays in deliveries had become commonplace.

Given the basic law of supply and demand we all learn in high school economics, the fact that prices are significantly down in the face of falling supply and increasing demand should seem contrary to free market system rules. This, according to Butler, is what made his manipulation claims all the more plausible. In his opinion, there must be something “wrong” with the price of silver, not with supply or demand.
“Investors should recognize that the manipulative sell-off may have created the very springboard that will cause the price of silver to soar,” said Butler. “Whether or not you believe manipulative forces are responsible for the recent significant dive in silver prices, you cannot ignore the disconnect between silver prices and supply/demand. Sooner or later, prices are bound to correct themselves.

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