In Ted Butler's Archive


The Office of the Comptroller of the Currency’s new Quarterly Derivatives Report was just released for positions held as of Dec 31, 2021. The report covers Over-The-Counter derivatives positions, including precious metals derivatives held by U.S. banks (futures and options contracts on the COMEX are not included in this report). Unlike the COT report, which never identifies traders by name, the OCC report names the top four U.S. banks in each category. The OCC report for precious metals includes positions in silver, platinum and palladium. The OCC reports total notional dollar amount, with no indication as to whether the positions are net long or short or how much of the precious metal category is silver or platinum or palladium. Generally speaking, it is thought silver makes up roughly 70% of the precious metals’ derivatives positions in this report.

The new OCC indicates another sharp increase in the precious metals’ derivatives holdings of Bank of America. In addition, the total amount of precious metals derivatives held by all U.S. banks reached record levels. Previously, JPMorgan dominated precious metals derivatives with up to 80% of the total holdings of the 4 largest banks. The new report indicates that JPM’s share of the 4 largest banks’ precious metals derivatives holdings is down to 42% and Bank of America holds close to the same total share as JPM. This represents an unprecedented reduction of JPMorgan’s former dominant role in OTC precious metals derivatives.

One of the most shocking features of the new report is that Bank of America is now within a whisker of becoming the largest U.S. bank precious metals derivatives holder from, quite literally, holding zero precious metals derivatives positions as recently as two and a half years ago. In fact, over the 24 months from Dec. 31, 2019, BofA’s OTC precious metals derivatives position has increased by an astounding 185 times or 18,500%, from $148 million to $27.32 billion.  In terms of large increases in a derivatives category, there has never been anything like this in OCC reporting history.

Coupled with the public data showing unprecedented inflows of physical silver (and gold) starting in the spring of 2020 into the ETFs and into the COMEX warehouses, it appears that BofA was involved in a massive precious metals lease/short sale and, therefore, the astounding increase in its OTC derivatives position likely represents a short position in silver. BofA’s derivatives position would represent a short position in excess of 800 million ounces – roughly equal to the annual world mine production of silver. BofA has little, if any institutional reputation or known experience in precious metals, so its sharply increased role is baffling. Further, it was involved in a deferred criminal prosecution agreement with the Justice Department for spoofing in COMEX gold and silver trading a few years back, for which BofA paid a fine of $25 million (and promised to stay on the up and up).

Even more concerning is the increase in total U.S. bank holdings, particularly in light of JPMorgan’s sharply reduced role over the past two years. Total U.S. bank OTC precious metals derivatives positions reached a record high of $79.246 billion as of Dec 31, 2021. Using the generally-accepted 70% share being attributed to silver, this suggests that more than $55 billion involves silver derivatives. Converting the $55 billion into equivalent ounces of silver (by dividing by the silver price of $23.35 on Dec 31) results in 2.35 billion oonces of silver. Please stop for a moment to reflect on this amount of silver OTC derivatives.

The 4 largest U.S. banks identified in the OCC report hold derivative positions on 2.35 billion ounces of silver – nearly three times as much as annual world mine production. This is separate and in addition to the roughly 800 million ounces of silver in total open interest in COMEX silver futures, as well as OTC derivatives held by non-U.S. banks. Between OTC and COMEX futures derivatives, more than 3 billion ounces of silver derivatives exist. No other commodity comes close to such a large derivatives position as does silver – begging the question of why such a large derivatives position in silver?

Derivatives positions should never be larger than the host market from which they are derived – as that would be a case of the tail wagging the dog. Yet, that has always been the case in silver – alone of all commodities. In simple terms, the OTC and listed COMEX silver derivatives are so extraordinarily large that they are smothering the price. There’s no legitimate explanation for why a handful of banks would hold such a massively large derivatives position in one commodity – silver – and not in any other commodity.

If Bank of America is, in fact, short 800 million ounces of silver (and 30 million ounces of gold), as the new OCC report suggests, then a run up in prices could easily bankrupt the second largest bank in the U.S., requiring a gigantic taxpayer bailout. Of course, nothing could be more bullish for silver than to have the big short sellers attempt to buy back their short positions. I suspect that is the end game arranged by another more devious bank. We know that JPMorgan’s interests have accumulated over a billion physical ounces of silver, and they would be the biggest beneficiary of a short squeeze.

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