The BIS uses swaps and other gold derivatives to gain access to gold held by commercial banks.
By Robert Lambourne
The July and August statements of account for the Bank for International Settlements indicate that the bank has continued to engage in gold swaps this summer. The BIS uses swaps and other gold derivatives to gain access to gold held by commercial banks.
But recent swap levels at the BIS remain much lower than in the second half of last year.
There is not enough information in the monthly reports to calculate the exact amount of gold swaps at the BIS, but based on the July and August statements the bank’s month-end gold swaps are estimated to be 95 tonnes for July and 162 tonnes for August.
This compares to 126 tonnes as of June 30, 2019, 78 tonnes as of May 31, 2019, 88 tonnes as of April 30, 2019, 175 tonnes as of March 31, 2019, 303 tonnes as of February 28, 2019, 247 tonnes as of January 31, 2019, and, for last year, 275 tonnes as of December, 308 tonnes as of November, 372 tonnes as of October, 238 tonnes as of September, and 370 tonnes as of August.
In addition the BIS’ annual report for the financial year ending March 31, 2019, was published recently. In accordance with the report’s usual approach, little is disclosed about the reasons for BIS activity in gold and in particular for trading gold swaps. During the financial year the BIS did not sell any of its own gold, the first time for several years that this has happened.
The use of gold sight accounts for central banks held at the BIS increased in the financial year, which is also something of a change, as their use has generally declined in the last decade. There have been further increases in the amount of gold deposited in BIS sight accounts by central banks since March 31.
More background on the bank’s medium-term history of using gold swaps is available here:
On February 3 this year GATA published comments from a former gold industry executive describing the activities of the BIS in gold swaps in earlier decades:
The former executive wrote: “Effectively this process created a supply of ‘paper gold’ — sometimes but not always marked to market — that had a depressing effect on the gold price.”
The BIS refuses to explain its activity in the gold market — its objectives and the underlying parties in interest —
— and mainstream financial news organizations refuse to ask about it.
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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