I wanted to write this article to help the community get better information by asking more and more questions. Not provide the answer. Often, we see an article like Ted’s come out, take it as fact, and spread it all over Twitter. Quickly. But I think articles like what Ted posted should be reviewed very carefully and peer reviewed of sorts. While I’m not his peer, I can be an understudy reviewing his data to chase it all back and see if it makes sense. We need to review the evidence, forensically. Then, we need to poke holes in assertions and devise more questions. The reason is, mostly, to turn Ted’s assertions into a fact-like statement. Currently – we aren’t near that claim.

I wanted to try and go over Ted’s assertions of BoA’s 800m oz silver short claim. First, I’m a fan of his. Second, years down perhaps I do a few hundred of these articles and help pick up the torch from some of these guys and along the way I learn how they derive assertions and conclusions. Part of this is studying what they report on. Where are they getting the numbers? What do they mean? Let’s harden the data and information and when presenting to the Jeff Christians of the world – hand over bulletproof facts rather than claims and assertions he simply swats away. I believe if you present people like him compelling information, they will dig in. I believe in his profession, you make millions by being right, not by making allegations. In this piece, I want to pick apart Ted’s claims for the purpose of trying to understand them better and perhaps finding areas we can ask for more information to bolster the claims/assertions.

Right now, the claim is this….

Bank of America leased 800m oz of silver from JP Morgan and then sold this all into the market. The net effects of this claim by Ted essentially are that by selling this all it helped depress the silver price AND when silver price rises, BoA is about to lose their shirt to the tune of $800m per dollar move up in silver – which could take them down.

I look into this here and want to prove Ted’s assertion to be correct. However, my main conclusions I draw from looking into this are that the data is inconclusive, and even if accurate, the BoA derivative position of $18.2 billion in silver is only 1/1000ths of their total derivatives and a move up in silver will not mean a hill of beans to them. What I want from this is a lot of people to ask a lot of questions and dig much deeper.

Reviewing the data

Some of these questions I can never accurately answer. It’s just the truth not having been in these industries. I can get you pretty deep, however, on compiling research of others AND understanding primary and secondary sources. What do I bring to the table? Six years of graduate school in 2 master’s degrees worth of writing papers. In blogs, you can play fast and loose with information like, “I read somewhere x, y, and z”. In research papers, you must cite your research and this also has degrees of dependability. I will do this below. For example, a study from Harvard would have more weight than Nate saying something because he feels it in his gut. My point is, when I put my nose down and do research to form complex theories – I want to get the best sources (and multiple sources) possible.

My positions on silver moving up are very much publicized. Many of us agree on this thesis, but for many different reasons. My PRIMARY explanation for silver explosions have to do with supply and demand fundamentals so out of whack that when this moves, it will move like Uranium in 2007. However, as PART of the mix, we have short covering which can help boost prices, and quickly. Part of my thesis in Feb 2021 had to do with the completely insane investment demand coming in with lack of PHYSICAL availability COUPLED with off-balance COMEX short positions – where the big banks were short 300-400m oz of “paper” silver. I have also contended that it is possible a LOT of that shorting is PHYSICAL that exists in SLV and they hedge this physical on the COMEX with shorting and roll it over. This is why, “the shorts are the ETFs” as it was famously put.

I digress….

Recently, I read the article about the 800m oz short position by Ted Butler and now I’m seeing this quoted a lot on Twitter. I have quoted it, but attributed it to Ted and have put an asterisk by this, for all intents and purposes. In this article, he made mention of a 300m silver short position where he asserted BoA leased 300m oz of silver from JP Morgan and then sold this short to perhaps SLV at maybe $18 per oz. He then went on to review that same report later to find it had now totaled $18b in derivatives – where he divided that out by a $26 or so silver price to get 800m oz. I want to review the source material he was looking at to see what he was talking about.

When you go to the OCC site, you can review publications. In his article, he mentioned the derivatives publication. Let’s FIRST look at what a derivative is.

I then downloaded the XML file for Q3 2021 to see what he was looking at. I found what he was talking about on table 21

This shows BoA with $18.2 billion in precious metals derivatives. So far, I now know where the $18.2b came from. But he then took this $18.2b and divided by silver price and assumed this was all silver AND all sold short. I think this is part of the hypothesis we need to look at more closely. Note that this report EXCLUDES futures contracts – in bold red I put above. So this is some sort of derivative outside of the COMEX futures contracts.

Edit: If I could lease silver when it was $18 per ounce, HOLD it, expecting it to get to $50 per ounce, selling it then, and cash settling a lease at $18 silver at the end of the agreement, I’d do it in a second. In this particular case, perhaps BoA has a hoard of hundreds of millions of ounces and they are expecting much higher prices and paying pennies to lease the metal? I cannot presume to know the intent of the lease or where the silver went.

First, I went back in time and saw what he saw – how from Q1 2021 the BoA derivatives were indeed much less.

But this number also asserts that this $8.3b was all sold short silver. He asserted previously that this was 300m short. He suggested this was sold to SLV to help their inflows.

To be clear, Blackrock runs the SLV trust and JPM is the vault custodian. So the assertion here is the following:

  • JPM had a LARGE silver pile they owned (at the JPM vaults at the LBMA).
  • They had been told to reduce this hoard
  • Instead of selling it, they leased it to BoA
  • BoA took possession of silver, on lease, to then sell to SLV and get billions in revenue (at the LBMA vaults)

This is what bothers me about metals leasing. First, I don’t understand it. I had heard of a few interviews of some who did understand it, but it was kind of monotone and boring AF. What I see is – If I lease a car, I cannot go out and sell this car to someone else. There is a lien on the car, meaning my bank would have to be paid off before I could sell it. IF you sold this to Blackrock’s SLV trust, you then have a condition where JPM owns the silver with a claim on it – because BoA leased from them, and then you have SLV having the claim in it, bought from BoA via Blackrock. This is where many bring out the word “rehypothecation”. This is where more than one person can lay claim to the metals. Two companies then have this as an owned asset on their balance sheets.

So if you invest in SLV, and shit goes sideways with the silver market, you may THINK you own silver in SLV. Maybe you are a whale and want to take out 50,000 oz. What happens when you go to take that out, but there’s also a claim on it by JPM who runs the vault? You aren’t getting your 50,000 oz it seems.

The issue is this. JPM runs the vault (and is the custodian) of SLV. When BoA leased this metal, the metal never moved from the vault. BoA had a lease agreement, and instead of moving this silver, they then sold it to Blackrock. Who uses JPM as the custodian. When Blackrock bought this, the pile never moved. Blackrock THINKS they own this metal on behalf of SLV sold to them by BoA. The problem is, JPM owns this metal, in this situation, and Blackrock is also laying claim to something – but JPM is the vault custodian and therefore possession is 9/10th the law.

In this scenario, if silver prices started going up, I’m not sure how BoA loses money – at that time. For example, they borrowed silver, sold it, and perhaps invested that $18.2b in Apple. That $18.2b over the last year grew to $40b. IF they want to pay off the lease, and silver was higher, they probably would have to buy metals at much higher prices (if they can find it) to then pay back the metals. In THIS case, BoA had perhaps doubled their investment and still made off with billions. However, when they lease – it’s a pretty low monthly payment.

When I tried to look up lease rates for silver, I saw this on Kitco

Now, the links weren’t working, but you can see how these rates may be different based on terms. This comports with the spreadsheet above which talks about “precious metals maturity <1 year”.

When you look at goldchartsrus, you can see some lease rates…

To me, these look like negative rates? Someone needs to make comments here and explain this to me like I’m a 5 year old. If I have a billion ounces of silver, and people want to lease it from me, why would I pay them to lease it?

So if I’m BoA and can lease 800m oz of silver from someone who then PAYS me to lease it, and I can sell it and then fire it into the casino stock market on a rampage and double or triple that money, it seems like a good deal.

The question I then have, is can you extend that lease? Can you pay a buy out cost in cash? OR, at the end of that lease, you have to produce the metals? If you can lease this, indefinitely, it then stands to reason you can grow that $18.2 billion, pay very nominal lease rates – if any at all – and can then enjoy the fruits of investing that into stonks that go vertical. If you cannot extend that lease, and the metals are due, then this would imply that $17.7b of BoAs silver needs to be paid back inside of one year from this report. However – IF this is a lease from JPM, has anyone seen the terms of the contract?

There is an article here on goldseek that looks to be from circa 2013 which explains metals leasing from a high level. One thing struck me here – JPM may not really have owned those 800m oz to begin with. For example, perhaps people had vaulted silver with them and they do not charge them for vaulting as long as it is understood they can lease out the metals.

Company A has customers who hold metals on deposit.  They’re not charged anything for this service, on the condition that Company A can use it in the meantime. Those clients have given their asset and accepted Company A’s good credit that they will deliver it back when needed. It is in reality no different that when you leave your money with a banking institution. The only difference is that the gold does not multiply through the banking system as money does. Because the sum total of physical metal does not change.

Let us make believe you are Company A and you have 10,000 ounces of gold deposited by your customers. Of those, you are able to lend out 8,000 ounces easily. But now you have an excess. So you calculate the earnings if you sell the gold outright in the market, and deposit or lend the cash to another borrower. To make sure you can give your clients the metal they’re owed, you also need to hedge yourself by buying gold back at a later date against a forward or gold futures contract (often referred to lately as paper gold) to avoid price risk

So in the above example, you may have JPM holding all of this silver (1b oz hoard) and leasing out 800m to BoA, who then sells it. This would indicate to me that BoA as the lessee here would have to repay the 800m oz. IF they sold short, it then would stand to reason that they would be 800m oz long on the futures to hedge to protect themselves. Remember, if they leased it/sold it when silver was $18/oz as you sold the physical, you would put on a long hedge to protect against upside movement in silver. IF silver got to $26 per oz, you then were down $8 per oz physical, but up $8 per oz on the long. If you are going long 800m oz on the COMEX, my bet is you’d move the price. AND – while there are position limits, I also believe there are exemptions for legit hedging – which this would be.

In the above case, you then could take $18.2b, fire it into the stock market, and buy long futures at a fraction of the cost of a contract. IF price rises, so what? If price of metals falls, so what? If price goes down, you buy the metal back cheaper and pocket the profits and lose out on the long futures. If price goes up, you buy the metal back more expensive, but made out on the longs. But that $18.2b went into the casino and you made out like a bandit.

If you look at ALL open interest on the COMEX, you see only 700m oz by ALL participants.

Of which, you see the big 8 banks short 300m, and not long. However – are they NET short 300m? No. They are NET short about 20m. This means they have longs AND shorts. However, it is clear BoA is not long 800m oz.

But the problem here is this. IF you are BoA AND you leased 800m oz from JPM, ok. Why didn’t you go long on COMEX? To me, the answer is if they went long on COMEX as a hedge, it would push the price of silver up, significantly. Like….explosive. IF that was the case.

My other question then is who the hell bought that 800m oz? It’s one thing to paper short the COMEX to drive prices down. But you are potentially talking physical delivery here. I can understand the concept of SLV adding some metals, but did they add 300m to their stocks? I don’t think so. Last I saw, they had 600m or so. Now, I don’t have the number they had prior to 2020. Could this have gone from 400m to 700m and since have been reduced under 600m from participants pulling out? Yes. Remember, net ETP investment was up like 300m in 2020, so that could have been a source for the ETFs to buy quickly – the SLV and SVRs of the world at the LBMA.

But what about that extra 500m oz? Who the hell did they sell that do? Now, the assertion here this is JPM silver they leased and then sold. Who bought 500m oz of physical silver in 6 months between those reports?????

Remember – DURING this time all through 2021, you had EVERYONE saying the markets were “tight”. Sprott talked about how they drained every 1,000 oz bar in North America, and how they had to ship some in – and PSLV was only 150m oz in size as SLV went down like 60m and the COMEX went down 80m. So people were pulling silver from the COMEX and SLV.

So my problems here are this:

  • IF BoA did indeed lease 800m oz, why didn’t they go long to hedge? Answer – IF they went long, it would drive the price up on the COMEX, by orders of magnitude. To NOT hedge, you are exposed to a risk of price increases. However, IF you are flooding the market with 1,000 oz bars, less would go long on futures and thus assure price would be lower when it came time to pay it back. Additionally, you may have a buy out price of the price at the time you leased of $18.
  • Why did so many people have problems finding silver in 2021 IF the market was flooded with silver from BoA? Answer – to me, this pile seemed to be a reserve to supply industry/ETFs to ensure they always got their metals and reduce friction. While everything else was dealing with months long delays, no one saw silver delays except mints? Hmmmm. This reduced the need for industry to go long on futures and reduced OI. It also seems to me that the pile they borrowed on lease doesn’t necessarily have to all be sold. It is possible, to me, that the 100m oz SLV supposedly added in 3 days could have been the result of JPM leasing this out to BoA, BoA selling it to Blackrock/SLV. The pile never moved. They simply ADDED an owner and re-hypothecated the silver in the LBMA. This also could be how the accounting error was discovered, if there were two owners on a pile of 100m oz of silver. I’m sorry, but if the LBMA has 1b oz of silver, it’s goddam hard to be off 10% in your inventory by a “participant”. If SLV had 600m oz at the time, an accounting error of 100m oz would be 17% of the total inventory. They call that fraud in some circles.
  • How much of the 800m does BoA still have of the leased in their pseudo possession? To me, there wasn’t a market to sell 800m in the last year – but that was a float leased for emergencies. Remember, we make missiles with lots of silver and we need that available. It stands to reason they may still have 400+m in their possession ready to hand back in. That still might leave them 400m oz short to pay back on a lease. But what if they can extend the lease?

My biggest problem here is the assumption this derivative is 800m oz of silver leased from JPM – and only that. Why? Take another look at the sheet….3 lines above.

This shows JPM with $27b in PM derivatives. Does this mean they leased 1.2b oz of silver from someone else? No. At issue is I do not know what the $18.2b derivative is for BoA, and I do not know what the $27.6b derivative is for JPM. To me, I think a lot of this is unknowable by someone like me. Which means my purpose here is not to speculate on what it is, but ask more probing questions to get better or more complete answers.

It would stand to reason you need an industry insider from BoA or JPM to answer what these are. Or, have access to these derivative contracts. Anything else is highly speculative. Ted Butler’s own words….

Now, Ted is right that the derivative position for BoA suddenly popped out of nowhere. Let’s look at Q1 of 2020.

What I want you to look at here is while BoAs total derivative position was 173m, JPMs was roughly the same as it is now in the high $20s of billions. Same as Citibank. When you have a derivatives contract, it’s a contract between two parties. Meaning, why wouldn’t JPMs move as well? One is assuming in the original report from recently that BoAs credit of $18.2b was JPMs debit of $18.2b. So it appears these contracts are conjured up out of thin air and put on to BoA – but why wouldn’t JPM account for them on their end?

What you see with these 3 reports are 2 of them having a total of about $65-68b in derivatives in 2021, but a total of only $49b in derivatives in 2021. That comports with the approximate $18b increase in derivatives for banks – but I see no accounting for this derivative with JPM. Perhaps this is how this works with leasing? One party accounts for $18.2b in leasing but the lessor ONLY records revenue from the lease? Why wouldn’t the lessor also record this derivative transaction? This confuses me.

Conclusion

I have a lot of problems with the speculation that this is BoA leasing 800m oz of silver from JPM and selling it. Meaning – I think his conclusion is highly speculative and the data he presents on face value does not provide any conclusive information. But it DOES present lots of questions. Here are my issues with the thesis that in future writings Ted can elaborate on.

  1. No details as to what the derivative is. What this is, is total speculation at this point. I’m willing to accept a lot of this is leased given how the data is framed. But I don’t know from who and what metals. It is possible Ted has sources that he doesn’t want to name/mention that pointed him to this information. It is possible he doesn’t mention any sources to protect them.
  2. JPMs derivative values haven’t changed in 18 months. Unclear if you lease out in a derivatives contract if you have to report the value of said contract on your end.
  3. IF this is a lease, I do not know the details on extensions. Could this be a cash settlement at the end? Meaning if they leased at $18 and price is $23 they can simply give them the cash price of silver at $23. IF they would have to go out and source 800m oz of silver, the price would hockey stick up to hundreds of dollars an ounce. It is likely there is a buyout. When I lease my car, I can buy it out at a price at the end of the lease. Has anyone seen this lease agreement?
  4. IF this is a lease and sell, why wouldn’t BoA go long on the futures to hedge the sell?
  5. Could this be a mix of gold and silver leases? Gold is much more valuable than silver. Meaning, it could be leased and sold silver – but only 30-50m oz and the rest COULD be gold leased/sold. You cannot tell from this because it only mentions PMs and not silver.
  6. I don’t know how much of the 800m leased, if leased, was actually sold. I can’t see 300m in SLV but I don’t have data going back that far, I have mostly only been following the SLV outflow.
  7. IF there was potentially 500m of metal sold into the market in 2021, why was virtually everyone complaining how hard it was to find “silver in size” and we had high premiums on 1,000 oz bars? You would think that this would have flooded the markets and no tightness would have been seen by anyone. At all.
  8. IF this metal was sold to Blackrock for SLV, it would explain the accounting issue of 100m oz that had claims on it by both JPM and Blackrock. BoA could have bought that metal back after silver squeeze to then remove the rehypothecation. So while it was sold to SLV, it could have been bought back as the demand subsided and price dropped. This could have had BoA selling them silver at $29 per ounce and buying it back for $24 when price dropped.
  9. IF BoA leased $18.2b of silver and sold all of it, how much could BoA made on stock market investments to then perhaps mitigate effects of having to buy back silver at higher prices at some time in the future? Meaning – assertions they lose $800m every time silver goes up a dollar doesn’t take into account how much silver they still have on hand they can return nor does the calculus here take into account the 5x they may have gotten from that $18.2b seed money and they would not blink at buying silver back more expensive.
  10. IF we are to assume the BoA PM derivatives is a lease of silver from some party based on this chart, what are we to assume of the JPM $27b number? Could that be JPM leasing gold from someone and selling it? Wouldn’t the same principles apply to JPM in this case with gold going up? Could these two banks have leased/sold into physical markets at the behest of entities that wanted to keep gold/silver low WHILE we printed USD? If so – how much physical could be left to continue this, or has this depleted stockpiles. IF stockpiles are depleted on short selling AND demand keeps up, this would mean the PM game of musical chairs stops in 2022 and Krakatoa happens with both gold and silver prices. It is POSSIBLE these banks leased metals with buyout prices that could be settled in cash. IF the gold that was leased was from the US Treasury (over many years and many leases – remember, the Treasury accounts for gold at like $35 prices) and could be settled in cash, how much gold does the US actually have now? This is perhaps why the Mooney audit of US gold reserves was denied and no audit has been done since 1954. Question is, IF there is no gold left, to what degree is that a national security risk to the existence of our currency? Could all of the conspiracy people have been right over the years and we leased out our gold and paid back in cash settlements? To me – this point here exposes a wider fraud with metals leasing that could go back 50 years to suppress metals as GATA suggests. The unknowing here is how much gold do we have left of the 8800 tons?
  11. This report shows banks’ derivatives. What is lost in the silver noise is the report on Table 13. BoA has over $20 TRILLION in derivatives. I think people haven’t put this into perspective here. This means the silver derivative is 1/1000th of all of their derivatives. I really want you to let this sink in. It doesn’t mean it isn’t egregious to the tiny silver market. I just want you to put into perspective that their silver derivative isn’t a bank killer. Most derivatives appear to be US bonds/treasuries. And, you do not know the terms of the silver/gold leases.

Note: I don’t know Ted and don’t want to make this out anything more than it is – an inquisitive reader wanting to know more details about his hypothesis and sources. I love his readings and any time he’s on YouTube my world stops to soak in all he has to offer. I just felt the latest article presented me with a lot of questions I wanted to dig into here.