The use of gold swaps and derivatives by the BIS has been extensive…
Monday, September 7, 2020
Use of gold swaps by the Bank for International Settlements increased again in August, according to the bank’s statement of account for the month:
The bank’s gold swaps rose by 10 tonnes from July to an estimated 484 tonnes. The swaps are used to gain access to gold supplies from bullion banks and the gold is then deposited in BIS gold sight accounts at major central banks, such as the Federal Reserve.
The use of gold swaps and derivatives by the BIS has been extensive so far this year, with August’s level being the highest since August 2018, as highlighted in the table below. By contrast, in May 2019 the bank was carrying only 78 tonnes in swaps.
The August estimate of the bank’s gold swaps is also higher than any level of swaps reported by the BIS at its March year-end since March 2010. Hence it is possible that the gold swaps as of August 2020 are the most ever for the bank.
The swap transactions create a mismatch at the BIS, which ends up being long unallocated gold — the gold held in BIS sight accounts at major central banks — and short allocated gold — gold due to be returned to counterparties.
This mismatch has not yet been identified as such in the bank’s annual reports.
The BIS refuses to explain the purposes of its activity in the gold market, nor for whom the bank is acting —
— though the bank is almost certainly acting for central banks, as they are the BIS’ only members and control its Board of Directors.
This refusal to explain prompts some observers to believe that the BIS acts as an agent for central banks intervening surreptitiously in the gold and currency markets, providing those central banks with access to gold as well as protection from exposure of these interventions.
This refusal to explain prompts some observers to believe that the BIS acts as a broker for central banks intervening surreptitiously in the gold and currency markets, providing those central banks with cover against exposure of their interventions.
The table below reports the estimated swap levels since August 2018. It shows that the BIS is actively involved in trading gold swaps and other gold derivatives with changes from month to month in excess of 100 tonnes in this period.
Month ….. Swaps
& year … in tonnes
Jul-20 ….. / 474
Jun-20 …. / 391
May-20 …. / 412
Apr-20 …. / 328
Mar-20 …. / 326*
Feb-20 …. / 326
Jan-20 …. / 320
Dec-19 …. / 313
Nov-19 …. / 250
Oct-19 …. / 186
Sep-19 …. / 128
Aug-19 …. / 162
Jul-19 …… / 95
Jun-19 …. / 126
May-19 …. / 78
Apr-19 ….. / 88
Mar-19 …. / 175
Feb-19 …. / 303
Jan-19 …. / 247
Dec-18 …. / 275
Nov-18 …. / 308
Oct-18 …. / 372
Sep-18 …. / 238
Aug-18 …. / 370
* The estimate originally reported by GATA was 332 tonnes, but the BIS annual report says 326 tonnes. It is believed that this difference arose because the gold price used to calculate GATA’s estimate was lower than the price used by the BIS. GATA uses gold prices quoted by USAGold.com to estimate the level of gold swaps held by the BIS at month-ends.
Robert Lambourne is a retired business executive in the United Kingdom who consults with GATA about the involvement of the Bank for International Settlements in the gold market.
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