Alasdair Macleod: Refuting Ted Butler’s Criticism

“I have decided I must refute his allegation that what I wrote is factually incorrect.”

by Chris Powell of the Gold Anti-Trust Action Committee (GATA)

By Alasdair Macleod

Following last Thursday’s article on silver (“A Whale Is Accumulating Silver Futures”), Ted Butler, an analyst who specifically follows silver futures on Comex, responded in an article posted on Silverseek entitled “Wrong Whale.”

I have decided I must refute his allegation that what I wrote is factually incorrect.

The problem right from the start is there are very few facts to go on, something I made clear in my article. In the absence of hard facts, it therefore amounts to one conspiracy theorist’s view against another’s. The difference is that in my article, for the avoidance of doubt, I clearly admitted this role for myself while Butler does not.

It is also important to understand that the real market for silver derivatives is in London forwards, which has only recently started to offer end-of-day clearing and vaulting figures. As I wrote in my article, looking at Comex is like observing the dog’s tail and not seeing the dog.

There may have been things I could have emphasised more. For example, the whale’s dealings on Comex are entirely financial in US dollars involving hedging only, with physical deliveries not a factor. This is why I concluded that the Peoples’ Bank of China was likely to be the whale, representing China’s government-owned and controlled processers and refiners. I could have stated that the PBOC is likely to have used a special purpose vehicle to accumulate long positions, concealing its true identity.

With the larger market in London, we mainly see a significant element of displacement activity on Comex. I can think of no other entity who might be large enough, outside some very large hedge funds, who can take a position, directly or indirectly in 20% of Comex’s open interest in the silver contract.

I could have emphasised more that the consequence of selling silver for forward settlement in London is likely to be reflected in bullion banks covering their matching forward purchases by selling Comex contracts. This would have changed when the whale decided to go long in London, when Swap dealers on Comex would in turn add to their longs.

I could have also discussed the implications of Swap dealers as price-takers by going short, and turning into price-makers by going long. But I had to stop somewhere, before my speculative argument was drowned in unnecessary noise.

What follows is extracts from Butlers article, followed by my comments. Obviously, TB is Butler, and AM is me.

The response to Ted Butler’s points


The 4 big concentrated silver longs, which I have been writing about for nearly a month, further reduced their net long position by 3882 contracts to 62,707 contracts. The only reporting category to have liquidated enough (or any real) number of contracts in the reporting week were managed money traders, proving conclusively that managed money traders held a significant percentage of the very strange concentrated net long position in COMEX silver.


Not true. Producers merchants reduced their shorts by 4,746 as well. The swaps reduced their shorts by 1,943, which with the fall in OI of 2,731 account for a fall of 4,674. You cannot with certainly attribute the reduction of the four largest concentrated longs to any one of the other COT categories just because the figures look similar.


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