IMF study in 1999 found 80 central banks lending 15% of official gold reserves

Section:

12:31p Sunday, December 9, 2012

Dear Friend of GATA and Gold:

A study by the International Monetary Fund in 1999, obtained last week by GATA's researcher R.M., reported that more than 80 central banks had lent 15 percent of official gold reserves into the market and that central banks then lending gold included the German Bundesbank, the Swiss National Bank, the Bank of England, the Reserve Bank of Australia, and the central banks of Austria, Portugal, and Venezuela.

The IMF study, commissioned as the agency pondered selling some of its own gold, emphasized the lack of transparency in the gold market and the secrecy demanded by central banks.

"Information on the gold market is patchy," the study said. "Transactions are characterized by a high degree of secrecy. Apart from the relatively small amount of open trading on exchanges, gold trades are private, over-the-counter transactions, and little is reported on these transactions. ... Official information on gold lending is virtually nonexistent."

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As a result, the IMF study said, its information was "largely drawn from private sources."

Predictably enough, the study said "the increased mobilization of central bank reserves through gold lending operations has had a depressing influence on the spot price for gold since on-lent gold is usually associated with sales of gold in the spot market."

Indeed, just a year earlier, urging Congress not to regulate financial derivatives, Federal Reserve Chairman Alan Greenspan had disclosed that controlling the gold price was the primary objective of gold lending: "Central banks stand ready to lease gold in increasing quantities should the price rise."

(See: http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm.)

Further, the IMF study said, gold lending had caused central banks to become active in the gold derivatives market with bullion banks and gold producers, "selling through forwards and options."

In turn, "bullion banks have made efforts to secure and consolidate long-term relationships with central banks."

"The number of countries with official-sector involvement in the gold lending market is now estimated to have reached over 80. The outstanding amount of gold lending provided by the official sector by end-1998 amounted to nearly 15 percent of official gold holdings of all central banks. The share of industrial countries in the stock of total official gold lending rose from 33 percent at end-1995 to 46 percent by end-1998 as some industrial-country central banks increased their lending, while new lenders, such as the Bundesbank and the Swiss National Bank, entered the market."

Thirteen years later it seems likely that the proportion of central bank gold reserves that has been lent into the market is substantially higher, as Western central banks continue to demand secrecy for their gold lending even amid growing concerns about the security of their gold reserves vaulted abroad.

With so many central banks lending so much gold in secret to financial institutions whose primary talent lately has been shown to be rigging markets, who but the usual agents of disinformation still can deny that the gold market is manipulated precisely to prevent the world from enjoying free markets generally?

The IMF's 1999 study of gold lending has been posted at GATA's Internet site here:

http://www.gata.org/files/IMFGoldLendingFullStudy1999.pdf

Your secretary/treasurer surely cannot have perceived everything of significance in the study and so would be grateful to receive comments on it by e-mail at CPowell@GATA.org.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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IMFGoldLendingFullStudy1999.pdf2.3 MB