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BIS reduces its gold swaps by two-thirds over last two months

Section: Documentation

By Robert Lambourne
Friday, May 24, 2019

The statements of account for March and April 2019 recently published by the Bank for International Settlements indicate that the bank is still actively trading gold swaps, which the bank uses to gain access to gold held by commercial banks. The statements also show that there has been a large decline in gold swaps entered by the BIS in the two months, about 215 tonnes.

This is a significant amount of gold. For example, Belgium, which claims the 20th largest gold holdings by country, reports about 237 tonnes in its reserves.

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The BIS published its March statement of account about two weeks later than it did a year ago, which is surprising.

There is not enough information in the BIS' monthly reports to calculate the exact amount of swaps, but based on the information in the BIS' just-published statement for March 2019, the bank's gold swaps can be estimated to be 177 tonnes at March 31, 2019, compared to 303 tonnes at February 28, 2019, a decrease of 128 tonnes.

This compares to an estimated holding of 247 tonnes at January 31, 2019, 275 tonnes at December 31, 2018, and 308 tonnes last November, 372 tonnes last October, 238 tonnes last September, and 370 tonnes last August.

It appears that the BIS reduced its gold swaps further in April 2019 by 87 tonnes, leaving only 99 tonnes in swaps as of April 30, 2019.

Hence in the last two months the BIS has reduced its gold swaps by around 215 tonnes, about two-thirds of its swaps.

More background on the bank's medium-term history of using gold swaps is available here:

On February 3 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."

It is interesting that the former executive reports that there were swaps that did not mark to market. This appears to have happened at least once in more recent times.

At March 31, 2017, the BIS annual report said the bank had 438 tonnes of gold swaps, valued at 14,086.9 million in the Special Drawing Rights of the International Monetary Fund.

Converting the SDRs into U.S. dollars, this is equivalent to a gold price per troy ounce of approximately $1,355. But the published market price of gold as of that date was approximately $1,245, so the swaps did not mark to market.

Indeed, a perusal of the gold price in the 12 months to March 31, 2017, indicates that the effective price of the gold swaps was equal to the highest market gold price during that 12 months, reached in the summer of 2016.

On the face of it this seems an odd coincidence. But if the gold swaps were undertaken with the intent of trying to suppress the price of gold, then perhaps this is not a coincidence. Perhaps the BIS' counterparty to the swap was willing to undertake it if it was not only entitled to the return of its gold swapped with the BIS but also protected from a fall in the price of gold for the duration of the swaps.

In itself this unusual transaction does not prove gold price suppression but it would be wholly consistent with price suppression being the real reason for the swap.

The BIS when approached by GATA continues to refuse to explain its activity in the gold market:


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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