The BIS’ use of gold swaps and derivatives has been extensive…
By Robert Lambourne
Wednesday, August 26, 2020
The recently reported July statement of account of the Bank for International Settlements discloses that the bank’s use of gold swaps increased strongly that month to an estimated 474 tonnes, up 21 percent from 391 tonnes in June.
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 BIS’ use of gold swaps and derivatives has been extensive so far this year, with July’s level being the highest since August 2018. By contrast, in May 2019 the bank was carrying only 78 tonnes in swaps.
The July estimate of the bank’s gold swaps is also higher than any swaps reported by the BIS at the March year-end since March 2010. Hence it is possible that the gold swaps as of July are highest 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 required to be returned to swap counterparties).
This mismatch has not yet been reported as such in the bank’s annual reports.
The table below reports the estimated swap levels since August 2018. It can be seen 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 states 326 tonnes. It is believed that this difference arose because the gold price used to calculate the GATA 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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