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BIS annual report is a reminder of who really makes the gold market

Section: Documentation

3:08p ET Monday, June 24, 2013

Dear Friend of GATA and Gold:

Publishing its annual report Sunday, the Bank for International Settlements provided more documentation that central banks remain the biggest participants in the gold market even as their activity in that market is carefully overlooked by the mainstream financial news media, which struggle every day to contrive rationalizations for gold price movements without ever getting too close to what is really going on.

The BIS annual report, posted at the bank's Internet site here --

-- and at GATA's here --

-- describes in general the bank's involvement in the gold market on behalf of its members or "customers," which are exclusively central banks.

On Page 110 the BIS says: "The bank transacts foreign exchange and gold on behalf of its customers, thereby providing access to a large liquidity base in the context of, for example, regular rebalancing of reserve portfolios or major changes in reserve currency allocations. The foreign exchange services of the bank encompass spot transactions in major currencies and Special Drawing Rights (SDR) as well as swaps, outright forwards, options, and dual currency deposits (DCDs). In addition, the bank provides gold services such as buying and selling, sight accounts, fixed-term deposits, earmarked accounts, upgrading and refining, and location exchanges."

... Dispatch continues below ...


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Again, on Page 131: "The bank operates a banking business in currency and gold on behalf of its customers. In this business the bank takes limited gold price, interest rate, and foreign currency risk."

Exactly why and for whom and for what purposes does the BIS trade gold, and why secretly?

Is all of this trading really just for "rebalancing of reserve portfolios"? If so, why the trading in gold derivatives?

The German financial journalist Lars Schall tried putting such questions to the BIS last year and was brushed off:

And what about the secret gold market interventions advertised by the BIS to potential central bank members?:

Truthful answers here might be sensational. Indeed, the BIS' refusal to answer might be sensational enough if widely reported. But news organizations like the Financial Times, Wall Street Journal, and Reuters are too polite to put to the most authoritative sources any relevant questions about gold.

GATA consultant Robert Lambourne, a bit of a student of the BIS, has reviewed what the bank's latest report says about gold and provides the commentary appended.

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

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BIS Reports Substantial Increase in Gold Swaps

By Robert Lambourne
Monday, June 24, 2013

In my view the most striking news in regard to gold in the annual report of the Bank for International Settlements is the increase in the level of gold swaps of 49 tonnes, from 355 tonnes to 404 tonnes.

The first BIS gold swaps were reported in 2009/10 when the bank swapped 346 tonnes and there was considerable speculation that this might have come from Portugal, though the BIS said at the time that the swaps were transactions with commercial banks.

In 2012-13 the amount of gold deposited on an unallocated basis with the BIS by central banks has declined by about 55 tonnes. Yet the amount of gold the BIS holds in gold loans or
deposits in gold sight accounts with central banks located in the major gold trading centers has fallen by about 6 tonnes to 917.5 tonnes, excluding the BIS' own gold of 115 tonnes.

Hence central banks have decreased by 55 tonnes the level of gold deposited with the BIS in sight accounts while the BIS has reduced its holdings of gold in sight accounts with the central banks located in the major gold trading centers by only 6 tonnes, with the difference taken up by increased gold swaps from undisclosed parties.

This pattern is entirely consistent with a hypothesis that there is a shortage of gold in physical form at the major gold centers.

In the case of gold swaps it appears that the BIS has a liability to return specific gold, while its own gold assets are in unallocated form, so it seems a slight puzzle as to why the BIS is seemingly assuming a greater degree of risk than its gold creditors have done under their swap contracts. Could it be because there is a shortage of available gold?

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