To put this into context, the volume of the BIS’ gold swaps remains larger than the 504 tonnes of gold held by the ECB. The BIS has…
By Robert Lambourne
Wednesday, December 9, 2020
The recently reported November statement of account of the Bank for International Settlements discloses that the bank’s use of gold swaps increased by 1 tonne to an estimated 520 tonnes, the same record level reached at the end of September 2020.
Hence in a month that saw a fall of more than $100 in the gold price, there was essentially no change in the level of gold swaps undertaken by the BIS.
But to put this into context, the volume of the BIS’ gold swaps remains larger than the 504 tonnes of gold held by the European Central Bank. The BIS has offered no explanation for this continuing high level of gold swaps. Indeed, the bank has offered no comment on its use of gold swaps since 2010. (See below.)
This gold is supplied to the BIS by bullion banks via the swaps. 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 this year, with the level reported in the last three months being the highest since August 2018, as highlighted in Table B below.
By contrast, in May 2019 the bank was carrying only 78 tonnes in swaps.
The September estimate of the bank’s gold swaps was also higher than any level of swaps reported by the BIS at its March year-end since March 2010.
Based on a review of the bank’s annual reports, it seems that the BIS was not involved in gold swaps for at least 10 years prior to 2010. As can be readily be seen in Table A, the BIS has used gold swaps extensively since its financial year 2009-10.
March 2010 … 346 tonnes
March 2011 … 409 tonnes
March 2012 … 355 tonnes
March 2013 … 404 tonnes
March 2014 … 236 tonnes
March 2015 ….. 47 tonnes
March 2016 …… 0 tonnes
March 2017 … 438 tonnes
March 2018 … 361 tonnes
March 2019 … 175 tonnes
March 2020 … 326 tonnes
The BIS rarely comments publicly on its banking activities, but its first use of gold swaps was considered important enough to cause the bank to give some background information to the Financial Times for an article published on July 29, 2010, coinciding with publication of the bank’s 2009-10 annual report.
The general manager of the BIS at the time, Jaime Caruana, said the gold swaps were “regular commercial activities” for the bank, and he confirmed that they were all carried out with commercial banks and so did not involve other central banks.
Hence it is likely that the current level of gold swaps is the highest use of them by the BIS for at least 20 years.
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 that must 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 BIS’ estimated gold swap levels since August 2018. It can readily be seen that the BIS is actively involved in trading gold swaps and other gold derivatives with changes from month to month in this period reported in excess of 100 tonnes.
Month ….. Swaps
& year …. in tonnes
Nov-20 …. 520
Oct-20 ….. 519
Sep-20 …. 520
Aug-20 …. 484
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 GATA used to calculate its estimate was lower than the price used by the BIS. To estimate the gold swaps held by the BIS at month-ends GATA uses prices quoted by USAGold.com.
As noted already, the BIS in recent times has refused to explain the reasons for its activities in the gold market, nor for whom the bank is acting:
Despite this reticence the BIS is almost certainly acting for central banks, as they are the BIS’ owners 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.
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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