FT's Lex on gold and the BIS: Nothing to see here


1:32a ET Sunday, July 11, 2010

Dear Friend of GATA and Gold:

Last week's pseudonymous "Lex" column in the Financial Times about the recent strange and hidden gold swaps undertaken by the Bank for International Settlements was typical FT -- high-falutin' dismissiveness about gold that avoided any original research, avoided even seeking on-the-record comment from the source, the BIS itself.

How does the BIS explain the transaction? Why was it hidden in a footnote in the bank's annual report rather than announced generally? Since commercial banks are not known for maintaining large gold reserves such as those in these swaps, where and how did the commercial banks get the gold? Were the commercial banks fronting somehow for central banks? What's really going on here?

Though the failure of the BIS to announce the transaction demonstrated an intent to hide it, Lex and the FT won't ask about it. Rather than investigate, Lex and the FT have lined up in front of the story to shoo curious onlookers away, much like the bumbling detective played by Leslie Nielsen in the fireworks factory scene in the movie "The Naked Gun":


When it comes to gold and central banking, the FT seems to see its job as being not so much to report the news as to suppress it.

The "Lex" column, headlined "The Gold and the BIS," is appended. Now move along. Nothing to see here.

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

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Gold and the BIS

By Lex
Financial Times, London
Wednesday, July 7, 2010


What to make of the news that the central banks' central bank is sitting on 346 tonnes of gold?

It is held via gold swaps between the Bank for International Settlements and European commercial banks that have collateralised loans with ingots. Such operations had been rare in recent years but took off in earnest just as the Greek sovereign debt crisis erupted -- so the news, contained in a note to the BIS' annual report, unleashed numerous conspiracy theories.

Traders theorised that one or more of the bloc's central banks pawned gold to prop up their groaning banking systems. Spain's regional savings banks, or cajas, and Greek lenders, for example, have sucked in copious liquidity in recent months and are likely to need more.

These transactions bore all the hallmarks of a furtive operation to assist a peripheral eurozone central bank unwilling to be seen pawning its reserves. But the swaps raised only $14 billion -- surely not enough for any such sweeping operations.

Another tale was that the central banks used swaps for bridging finance pending drawdown of the eurozone rescue package; but again, the numbers fail to stack up.

An even more far-fetched explanation has the International Monetary Fund selling reserves to boost its own finances ahead of a bailout.

The reality is almost certainly more prosaic, having more to do with the technicalities of the collateralised lending market than with the entry of a big new player. But the far-fetched theories still had a real-world consequence and put the skids under gold: prices slid back to late-May levels on the news.

Ironic, really, since it is jitters about the eurozone debt crisis that had fuelled the precious metal's fabulous rise -- up 15 per cent from the start of the year to a nominal high of about $1,265 a troy ounce two weeks ago.


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