In Ted Butler's Archive


The big question surrounding Bank of America’s (BofA) massive and unprecedented increase in its OTC precious metals derivatives positions is whether the bank knew the full consequences of what it has done? Also, did the Office of the Controller of the Currency (OCC) understand that BofA was reporting it sold short 30 million ounces of gold and 800 million ounces of silver for a total of $70 billion? For silver that’s an increase of 10,000% over 18 months. There has never been such an increase in any derivatives position. Within a few months of this short sale, COMEX gold warehouse inventories more than quadrupled to 35 million ounces and inflows into the big silver ETF, SLV, surged by more than 300 million ounces. I wrote that the surge in physical silver inflows were due to a lease/short sale arrangement.

In a precious metals lease the metal borrowed gets sold (short) to a third party who walks away with legal ownership to the metal. The purported borrower and short seller, BofA, is legally responsible to return the metal to the lender someday, but in this case the borrower may have a very difficult time doing so.   To have obligated itself to what could turn out to be a ruinous end game, I can’t help but call Bank of America dumb and the OCC just as dumb and negligent for allowing this to happen. That’s why it’s important for each to explain the full circumstance of the precious metals position. The payback and inevitable reaction to these unnatural forces are set in stone and it’s only a matter of time until they kick in. You couldn’t have a more bullish case. Manipulations can’t last indefinitely and BofA is sitting on a price bomb certain to detonate at some point.

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