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December 28, 2021 | Another Stunning OCC Report

No one has followed the silver market trading mechanics for as long or as closely as Ted Butler.

The new quarterly derivatives report from the Office of the Comptroller of the Currency, part of the US Treasury Department, was released earlier this past week covering Over-The-Counter (OTC) derivatives positions of US banks, for positions held as of September 30.

Some background data on this report. Always excluded are derivatives positions held by US banks on listed exchanges, so futures contract positioning on the COMEX is not included in this report. Also, the OCC report is incredibly non-specific in terms of whether OTC positions are net long, short or neutral – only the total notional value of the contracts held is provided. Compared to the remarkably-detailed COT report on COMEX positioning, the OCC report is like a Model T of yesteryear compared to a Tesla. Finally, the OCC report is always published with a three-month delay, compared to the usual three-day delay of the COT report.

Due to a change in methodology a few years back, gold derivatives holdings were removed from the precious metals category and put into the foreign exchange category, thereby rendering the gold derivatives positions of the US banks highly opaque and, effectively, worthless, at least to me. However, one of the unintended (I’m sure) consequences of gold’s removal from the precious metals category was that the change made much more specific the silver component of the precious metals category (which also includes platinum and palladium).

About the most redeeming feature of the OCC report is that it identifies the leading US banks by name (something the COT report doesn’t do) and how much of the total derivatives pie the 4 largest banks hold in each derivatives category by notional dollar amount. A standard feature of the report, which I have followed for 20 years or so, is how JPMorgan dominates each and every derivatives category – often to the tune of 70% to 80% of each category. I’ve always labeled JPM as the largest and most important bank in the US, and a quick perusal of any OCC report drives that fact home – it’s almost incredible how large JPMorgan is in every derivatives category. Over the years, the precious metals category most often included JPM and only one other bank.

In fact, what makes the new OCC report for positions held as of Sep 30 so stunning is the shocking reduction in derivatives positions in the precious metals category held by JPMorgan from June 30 and over the past couple of years – along with the shocking increase in holdings by Bank of America. Earlier this year, I did write about Bank of America’s surging OTC precious metals derivatives position, which has since exploded further –

Unfortunately, the OCC derivatives report is not an easy report to access and on top of that, the format was changed somewhat from prior reports in which the precious metals category table was always table 9, but the new report changed that to table 21 (on page 26). Here’s the index for all OCC reports going back to 1996, starting with the most recent report. You’ll need to first download whatever report you wish to view –

Please allow me to present the new data in my own words, but as always, if you have any questions, please don’t hesitate to contact me. JPMorgan’s share of precious metals derivatives has been shrinking for the last couple of years, I believe as a result of its decision to abandon its dominating control on the short side as a result of it having amassed the largest physical (non-derivative) position in silver (and gold) in history. Moreover, I’m convinced that JPMorgan’s OTC precious metals derivatives position is now primarily long, whereas the other banks mentioned are, essentially, short.

As of Sep 30, JPMorgan’s share of precious metals derivatives had dropped to $27.6 billion, down from $38.3 billion on June 30. At the same time, Bank of America’s holdings as of Sep were $18.3 billion, up from $10.2 billion on June 30. As recently as two years ago, Bank of America held no OTC derivates positions in precious metals. Other key findings in the new OCC report were the emergence of Goldman Sachs as a precious metals’ derivatives ($0.9 billion) holder for the first time in history.

Interestingly, the precious metals derivatives position of Citibank on Sep 30 was $9.7 billion, down from $12.9 billion on June 30. Still, for the first time ever, the combined derivatives positions of Bank of America and Citibank on Sep 30, $28 billion, exceeded the holdings of JPMorgan for the first time in history. Most notable of all is that JPMorgan’s share of precious metals derivatives is now the lowest it has been in the history of this report – all while the bank has largely maintained its dominating share in other derivatives categories.

Please understand that the price of silver (the largest component of the precious metals category) was $22.20 on Sep 30, down just over 15% from the June 30 close of $26.20 – so, were all things the same, the nominal dollar amount of holdings of precious metals derivatives would be expected to have dropped by that same 15%. This makes the near 28% reduction in JPM’s holdings and the near 80% increase in BofA’s holdings even starker. JPMorgan’s holdings went down much more than the price of silver declined and Bank of America’s increase was so much larger as to be astonishing.

The actual numbers are there for you to review, but please allow me to tell you what I think the data mean. From my perspective, it means that JPMorgan is making a beeline to rid itself of short precious metals derivatives as rapidly as possible and Bank of America is making a beeline to being the silver (and perhaps gold) chump of all time. Since I’ve long contended that JPMorgan was pulling off the largest double cross in history, in slithering out of its silver and gold short positions, I can’t express any genuine surprise about this latest OCC report, although that in no way reduces its stunning impact.

As far as Bank of America, while I’m a bit surprised at the extent of the increase in its OTC derivatives position, I had previously labeled it as the likely chief double cross dupe, so no real big surprise. In practical terms, I am now convinced that Bank of America has now borrowed (and gone short) at least 500 million oz of physical silver (from affiliates of JPM), which just about assures that BofA will be the biggest bag holder as and when silver explodes in price.

As far as what prompted Bank of America to put itself in such a vulnerable position, I confess to thinking first of some deep dark conspiracy theory, but if I’ve learned anything over the years, it is not to eliminate stupidity as an explanation. To those who might suggest that the US Government is pulling the strings, then what would it gain by the switch from JPM to BofA? Besides such thinking leads one into a never-ending rabbit hole of impossible-to-prove conspiracy theories. Further, the history of banking is basically a history of blunders and bad decisions.

Remarkably, this is the second time in the past few decades that precious metals leasing – hands down the dumbest idea ever concocted by the Wall Street banks – has reared its head with a virtual guarantee to end bad. The last time around, the banks stuck it to the gold and silver miners, where tens of billions of dollars were lost by the likes of Barrick and AngloGold in gold and Pasminco and Apex Silver in silver. Here’s an article from nearly a quarter century ago describing just how dumb precious metals leasing was and still is –

I can’t help but believe that Bank of America was hit with the stupid stick before embarking onto this silver journey. Of course, I suppose other explanations are possible, as long as they abide by the facts in the OCC report – although none come to mind.

The bottom line on all this is a setup so bullish in silver so as to defy words. I still stick by my contention that if the big 4 COMEX shorts don’t add aggressively to short positions on the next silver rally, we will be off the races and that Bank of America will be the big loser. For every dollar silver moves higher, it stands to lose $500 million or more. This new OCC data only adds more bullish fuel to the coming silver fire.

Ted Butler


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December 28th, 2021

Posted In: Butler Research

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