For this step, you will need your metal powder, the drilled piece of wood, your bottle of CA glue, a glue pipet, and a small length of 30AWG Silicone Cover Stranded-Core Wire. I have found that thicker gauges of wire do not work as well for this technique, and thicker wire will cause false touches to be read along the length of the wire instead of focused at the button.
Strip a small section of wire at one end, and place the non-stripped end through the 1/16" hole in your piece of wood.
Thread the wire through until the stripped portion lays flat on the bottom of the 1/8" deep hole that you made with the forstner bit.
Load your pipet about half full with CA glue, and add a small amount of metal powder to the bottom of the hole. Add enough to cover the wire, but don't fill the hole at this point. Use the pipet to place a few drops of CA glue on the powder. The powder will quickly soak up the drops of glue, and you should only add enough glue to evenly saturate the powder.
Now that the wire is glued into place, you can fill the hole with metal powder. Make sure the powder is packed down well, and that you add enough so that the pile of powder is slightly proud of the wood surface.
Starting from one end, start adding drops of CA glue to the powder. The CA glue will flow through the narrow spaces between the bits of metal in a process called capillary action. If you ground the powder too fine, the CA glue will not be able to penetrate the powder, and it will sit on top of the powder. If this happens, you may need to grind a new batch of powder. Do not oversaturate the powder.
Let the glue dry overnight. It may feel dry to the touch, but it takes longer for the glue below the surface to dry. After the glue has dried, you will be ready to even out the surface of the button.