February 15, 2006

Facts:

It Appears "that silver manipulation" is OVER:LOOKED by Justic, the SEC and the Commodity Exchanges.

Could you explain why?

    To my Congresswoman

    To my 2 State Senators

    To the Washington Post?

The silver shortage exists "primarily" because the price of silver is too low; eventually, a price increase will let market forces determine the price of silver; and not manipulators on the Commodity Exchanges.

Price will increase production significantly; as well as providing American consumers with the incentive to turn in millions of ounces of silver -- jewelry, coins etc.

Let the market be free; let justice prevail.

We’ve already seen a stunning reversal in position by the Silver Users Association on the matter of how much aboveground silver remains. After decades of arguing that silver is so plentiful that it was not possible to ever run out, the SUA has done a complete about face and confirm how little they think remains. And while the SUA is sleazy, in my opinion, their abrupt and dramatic reversal spoke to self-interest and it rang true that they were genuinely concerned about a silver shortage (as well they should be). Get ready for more stunning reversals of opinions on silver, as the world wakes up to what has been right under its nose for many years.

But a rejection of the ETF by an official government agency would be much more dramatic and compelling. The SEC is reviewing this ETF approval process and the overall consequence to the market with input from the CFTC and the Treasury Department and interested industry officials. Of this, you can be sure. I don’t envy the bind that the authorities are in. They are damned if they do approve and damned if they don’t.

The problem is that the authorities, most specifically the CFTC and the COMEX, but also the SEC and the Justice Dept and Treasury have ignored the silver manipulation and the indefensibly large naked short position for decades. I know this to be true because I have personally petitioned them on countless occasions. They have always maintained there is plenty of silver and the short position is no problem. This ETF, approved or not, will destroy that premise, particularly if it is rejected.

Think about it – a rejection would come for one reason only – they think there is not enough silver to support an ETF. I doubt that they would be open and honest enough to admit that in clear terms, but there could be no other reason. And think about how unfair this would be. We have two approved US gold ETFs, three more overseas and more planned, but they are afraid of one silver ETF. They’ll sit by and ignore the manipulation and the largest short position in history in silver, but may move to kill the one thing that would put a stake through its evil heart. Talk about hypocrisy.

In reality, we don’t need a silver ETF to cause the price of silver to explode. The fundamentals and the short position will result in an explosion in due course, all by themselves. There already exists a COMEX short position much larger than the amount of silver that might be bought by an ETF. That said, a silver ETF would compress the fundamentals and the short position into a catapult of the price. WHY?

But a rejection of the ETF, aside from a possible knee-jerk sell off, would cause thinking investors to question why? That thinking will lead those investors to buy and hold silver. Anything that causes people to think things through on silver will probably end up with them buying. As I said last year, we all owe Barclays gratitude for this set up.

-- Posted 31 January, 2006

rule-comments@sec.gov.

Please include File Number SR-Amex-2005-072 on the subject line.

-------------------------------------------

To: US Securities and Exchange Commission

Subject: File Number SR-Amex-2005-072

Dear Sirs,

I urge you to approve the listing of Barclays' iShares Silver Trust based on important expert information already in the file as well as critical mineral reserves information from the US Geological Survey that seems not to have been considered in this process:

The expert information already in the file is a note the SEC received from CPM Group:

http://www.sec.gov/rules/sro/amex/amex2005072/amex2005072-195.pdf

referred to by an internal SEC memo belonging to this process:

http://www.sec.gov/rules/sro/amex/amex2005072/memo013106.pdf

"regarding the effects that approval of the Barclay's Silver Shares proposal would have on the commodities pricing of silver bullion" (quoted from the memo).

The CPM note basically says there is very little silver around. Quoting from it:

"One of the misunderstandings common in the silver market is that there are hundreds of millions of ounces of silver in inventories in London and Zurich. There is not nearly that much. There may be between 75 and 100 million ounces in these bank vaults as of early 2006."

From that information, it is a straightforward logical conclusion that the ETF would have a very high impact on the silver price. That conclusion, in turn, could erroneously lead anyone WITH OBSOLETE AND DANGEROUS CORNUCOPIAN PARADIGMS to the conclusion that the ETF should not be approved.

What do I mean by "obsolete and dangerous cornucopian paradigms"? Those that ignore the concept of Hubbert's Peak, a term which - although generally used as synonymous for Peak Oil - applies also to the extraction rate of metals (and I purposely said "extraction" instead of "production" which is a misleading term, because it does not reflect the fact that taking oil or metals from the Earth is a one-off event intrinsically different than harvesting crops.)

Any metal, like oil, is a non-renewable, absolutely exhaustible resource which exists in LIMITED amounts in exploitable ores of high enough grade in the ground. And any metal, like oil, has its own bell-shaped curve of production rate over time, whose highest point is called "Hubbert's Peak" in honor of geologist M. King Hubbert who first formalized this concept in 1949. And, of all metals, SILVER HAS THE NEAREST HUBBERT'S PEAK.

I will substantiate this crucial statement with a source beyond dispute: the 2006 issue of the "mineral commodity summary" for silver prepared by the U.S. Geological Survey, which is at:

http://minerals.usgs.gov/minerals/pubs/commodity/silver/silvemcs06.pdf

This document states that for 2005, in metric tons (mt):

- world mine production was 20,300 mt;

- world reserves stood at 270,000 mt (13.3 years of production);

- world reserve base stood at 570,000 mt (28.1 years of production);

where: reserves = that part of the demonstrated (measured plus indicated) resources that are currently economic, i.e. which can be economically extracted or produced currently; and reserve base = those demonstrated (measured plus indicated) resources that are currently economic (reserves), marginally economic (marginal reserves), and some of those that are currently subeconomic (subeconomic resources).

A quick comparison with other metals will show that silver has the lowest reserves/production and reserve base/production ratios. That comparison was done a year ago by Mr Theodore Butler using data for 2004 and can be viewed at http://www.investmentrarities.com/01-04-05.html

From that page:

Comm Production Reserves Reserve Base Reserves Reserve Base

          (...Metric Tons...)   (..Years Remaining...)

Aluminum 30 million unlimited unlimited 100+ 100+

Copper 14 million 470 million 940 million 33+ 67+

Lead 2.6 million 67 million 140 million 23 48

Nickel 1.4 million 62 million 140 million 44 100

Zinc 8.5 million 220 million 460 million 26 54

Silver 20,000 270,000 570,000 14 29

Gold 2,600 43,000 89,000 17 34

PGM 350 70,000 80,000 200 200+

Please note the difference between the 2005 and 2004 figures for silver: one year passed, one year less remaining in reserves and reserve base.

Though the cases for gold and silver do not look very different from the above table, it should be noted that a large portion of above ground silver is in non-recoverable form, spread e.g. in myriads of electronic devices. That sets it apart from gold, which is mostly in readily recyclable bullion and jewelry form.

Last but not least, silver - having the highest electrical and thermal conductivity of all metals - will be a critical resource for the technological breaktroughs needed to successfully tackle the forthcoming energy crisis.

Therefore, summarizing the facts about silver:

- It is the metal in worst state of mineral depletion (from the USGS).

- Its above ground stocks are very small relative to production (from CPM).

- It is a strategically critical resource.

In view of these facts, which of the following should be the wise path?

  1. Approving the ETF, thus allowing the ensuing accumulation to increase above ground stocks from the current extremely low levels, and by doing so cause the price to rise which in turn will discourage non-essential consumption and encourage exploration, or
     
  2. Rejecting the ETF, thus preventing the market from having the price signals that "play a key role in conserving scarce resources, directing those resources to their most highly valued uses"?
     

If you are still in doubt about which is the wise way to go, let me quote from the remarks by former Federal Reserve Chairman Alan Greenspan on energy, made in Tokyo on October 17, 2005 and available at

http://www.federalreserve.gov/BoardDocs/Speeches/2005/20051017/default.htm

"The experience of the past fifty years--and indeed much longer than that--affirms that market forces play a key role in conserving scarce energy resources, directing those resources to their most highly valued uses."

"Barring political impediments to the operation of markets, the same price signals that are so critical for balancing energy supply and demand in the short run also signal profit opportunities for long-term supply expansion."

In view of these remarks, and completely at odds with the opinion Mr Theodore Butler expressed (obviously not having Hubbert's Peak considerations in mind at that time) in the document added to the file at

http://www.sec.gov/rules/sro/amex/amex2005072/tbutler020606.pdf

I would say that, when I put myself in your shoes, approving a security that would impact the price of a strategic commodity in a state of critical shortage and depletion would be the SURE thing I would do.

By the way, isn't a commodity ETF conceptually similar to the US Strategic Petroleum Reserve (SPR)? Isn't the SPR like a Trust whose shareholders are all US taxpayers? Wasn't this Administration's decision to fill up the SPR bitterly criticized by short-sighted politicians, on the grounds that doing that was contributing to high oil prices (which of course it was)? And didn't the oil in the SPR prove invaluable after the havoc played by hurricanes Katrina and Rita on oil production facilities?

I hope you will make a wise decision. A decision that helps keep civilization safe.

We’ve already seen a stunning reversal in position by the Silver Users Association on the matter of how much aboveground silver remains. After decades of arguing that silver is so plentiful that it was not possible to ever run out, the SUA has done a complete about face and confirm how little they think remains. And while the SUA is sleazy, in my opinion, their abrupt and dramatic reversal spoke to self-interest and it rang true that they were genuinely concerned about a silver shortage (as well they should be). Get ready for more stunning reversals of opinions on silver, as the world wakes up to what has been right under its nose for many years.

But a rejection of the ETF by an official government agency would be much more dramatic and compelling. The SEC is reviewing this ETF approval process and the overall consequence to the market with input from the CFTC and the Treasury Department and interested industry officials. Of this, you can be sure. I don’t envy the bind that the authorities are in. They are damned if they do approve and damned if they don’t.

The problem is that the authorities, most specifically the CFTC and the COMEX, but also the SEC and the Justice Dept and Treasury have ignored the silver manipulation and the indefensibly large naked short position for decades. I know this to be true because I have personally petitioned them on countless occasions. They have always maintained there is plenty of silver and the short position is no problem. This ETF, approved or not, will destroy that premise, particularly if it is rejected.

Think about it – a rejection would come for one reason only – they think there is not enough silver to support an ETF. I doubt that they would be open and honest enough to admit that in clear terms, but there could be no other reason. And think about how unfair this would be. We have two approved US gold ETFs, three more overseas and more planned, but they are afraid of one silver ETF. They’ll sit by and ignore the manipulation and the largest short position in history in silver, but may move to kill the one thing that would put a stake through its evil heart. Talk about hypocrisy.

In reality, we don’t need a silver ETF to cause the price of silver to explode. The fundamentals and the short position will result in an explosion in due course, all by themselves. There already exists a COMEX short position much larger than the amount of silver that might be bought by an ETF. That said, a silver ETF would compress the fundamentals and the short position into a catapult of the price.

But a rejection of the ETF, aside from a possible knee-jerk sell off, would cause thinking investors to question why? That thinking will lead those investors to buy and hold silver. Anything that causes people to think things through on silver will probably end up with them buying. As I said last year, we all owe Barclays gratitude for this set up.

-- Posted 31 January, 2006

Feb 14, 2006

Edward J. Wisniewski CMA MBA**
Polly Wisniewski

** pending thesis (Competitiveness)