Thread by @profitsplusid

1/9 The biggest buyers of physical gold and silver right now are the Banks who are involved in the precious metals derivatives and trading markets!

Are growing risks of default or failures imminent?

2/9 Below is a report from the Office of the Comptroller of the Currency. They compile a quarterly report on Banks involved in Derivative Trading. Amazingly, four large US banks held 88.1 percent of the total banking industry notional amount of derivatives. These derivative notional amounts increased in the third quarter of 2024 by $10.7 trillion, or 5.2 percent, to $218.8 trillion.

3/9 Part of these derivatives are precious metals. I have 2 charts below that show a snap shot of the 4 largest holders. The report is delayed by 3 months so the 3rd quarter of 2024 is the most recent data. Precious metals derivatives grew from the second quarter of 2024 of $486,472,000,000 to $566,512,000,000 in the 3rd quarter of 2024. This is an increase of $83 Billion.

4/9 The chart below gives a great snapshot of the growth we have seen in derivatives by bank in the precious metals markets. Please note in 2023 the big jump was simply moving gold derivatives from the interest rate swap category to the precious metals category.

5/9 What does this all mean? In summary banks are on the hook if the cost of obtaining physical metal rises and these derivatives they have sold and used as indexing or money management transactions need to be backed or related to actual physical metal rather than deferred spot contracts. The sudden rise of leasing and financing costs associated with the need to obtain physical precious metals rather than relying on existing spot or spot deferred paper contracts adds unforeseen exposure.

6/9 Basel 3 is also being implemented in the USA. Please note the term Tier or Level One Asset is commonly misquoted. This phrase has to do with the bank’s cost of capital of funding. The focus for this article should be centered on the term QCCPs or qualifying central counterparty. The Comex of Nymex would be a good example. The chart below is from the OCC’s Quarterly Report on Bank Trading and Derivatives Activities. At the end of 2ndQuarter of 2022, Basel 3 was to begin implementation. We started to see a higher weighting of centrally cleared derivative contracts. I believe the gold and silver coming onto the Comex and Nymex are not only due to Bank’s concerns over tariffs but also to remove as much of their liability from traditional OTC transactions commonly used in London. Basically, de-risking Bank Balance Sheets and placing the responsibility of clearing onto regulated exchanges such as Comex and Nymex. We should start to see in future OCC reports a noticeable increase in Centrally Cleared Derivative Contracts for precious metals.

7/9 For background on Basel 3, I wrote a very good article in 2022 goldsilvervault.com/basel-3-and-lo… and was interviewed by @PalisadesRadio going through the Basel language.
youtube.com/watch?v=r4-5S0…

8/9 The final chart below is something I have created over the years to measure the leverage of paper ounces to physical ounces in the futures markets. Since the election, the futures market (Comex) has been in the process of deleveraging. Meaning a wave of physical deliveries are reducing the paper ounces of existing open interest relative to physical ounces held in Comex depositories backing those paper ounces. I have compared the dates of 10/15/2024 to 2/4/2025. Silver paper ounces to physical ounces dropped from 10.26 to 8.71 and Gold paper ounces to physical ounces dropped from 6.92 to 3.26.

9/9 What few are expecting is a market where this deleveraging continues. Higher carrying and lease costs are also having a similar effect. This may allow more price discovery by the physical metal versus traditional finance instruments. Many players who have been benefiting from this arbitrage have gotten stung by being short the futures and have disengaged or taken severe losses. President Trumps seems to be setting a policy going forward which makes tariffs a more involved strategy for tax revenue and trade policy. I do not believe this volatility is going away anytime soon.

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