published its "Year of the RPG" year-end quarterly revaluation ConFinStat yesterday, and the trend continues. Here are the relevant results:
In the week ending 30 December 2011 the increase of EUR 3.6 billion in gold
and gold receivables (asset item 1) reflected quarterly revaluation
adjustments, as well as the sale of gold coin by one Eurosystem
Quarter-end revaluation of the Eurosystem’s
assets and liabilities
In line with the Eurosystem’s harmonised accounting rules, gold, foreign exchange,
securities holdings and financial instruments of the Eurosystem
are revalued at market rates and prices as at the end of each quarter. The
net impact of the revaluation on each balance sheet item as at 31 December
2011 is shown in the additional column “Difference compared with last
week due to quarter-end adjustments”. The gold price and the principal
exchange rates used for the revaluation of balances were as follows:
Gold: EUR 1,216.864 per fine oz.
USD: 1.2939 per EUR
JPY: 100.20 per EUR
Special drawing rights: EUR 1.1867 per SDR
As I noted here
last Friday, during the dark of Thursday night, euro gold mysteriously
levitated itself up a whopping €32.89 from Thursday's London PM fix of
€1,184.16, which would have been a disappointing decline since the October MTM Party
which marked gold at €1,206.39. This, of course, begs the question
(once again) that was implied in this post as
to how important "Snapshot Day" really is to young central bankers.
(Evidence from Sept. '10 and April '11 seems to suggest that year-end and
mid-year might be more important than the other two quarters.)
But this is neither here nor there which is why I put it in a silly little
sidebar. It is simply a curious observation.
It is funny to see how pathetically little some in the euro-skeptical media
really understand about the Eurosystem. Here's the
Wall Street Journal's Marketwatch headline relating
to yesterday's MTM Party:
ECB balance sheet
grows, gold reserves increase
The flaw in the headline is compounded in the body of the article:
"The value of the Eurosystem's gold and
gold receivables holdings increased by EUR3.6 billion to reflect quarterly
revaluations as well as the sale of gold to the ECB by another
euro-zone central bank, the ECB said."
First of all, that's not what the ECB said. This reporter's statement that
one of the NCBs (National CBs) sold gold to the ECB carries obvious
implications which are not only wrong, but very misleading. Someone in Europe
emailed me last night asking:
"Did you notice that one European CB sold gold
to the ECB? My guess is it was Italy."
Someone else posted this comment on a forum after
reading that article:
"Gold of a Eurozone CB sold to ECB ... If I am
not mistaken-correct me if I'm wrong-this does not happen very often?
More gold on ECB balance sheet in exchange for buyout sovereign debt perhaps
Here are the problems with that article. The ECB is simply the core of the Eurosystem. Actually, there are two systems. The ESCB or
the 'European System of Central Banks' which is comprised of all the CBs in
the EU, even those not using the euro as their currency. And then
there's the Eurosystem which is comprised of all
the CBs using the euro, with the ECB at its operational core.
The ConFinStat, put out weekly with quarterly MTM
revaluation, is the balance sheet of the whole Eurosystem
which includes all of the NCBs using the euro. It is not the balance sheet of
the ECB. If you'd like to see the ECB's balance sheet, you can find it in the
Annual Report for the ESCB and the Eurosystem which
is published every year at the end of the first quarter to be presented to
the European Council, Parliament and Commission. In last year's report, which
can be found here,
the ECB's balance sheet appears on page 214.
The actual ECB balance sheet includes 16,122,143 ounces, or 501.5 tonnes of gold which was valued at €17B as of
December 31, 2010. That gold comes from the "foreign reserve asset"
capital subscription to the Eurosystem by the NCB's
of which at least 15% of the subscription fee had to be in gold. And the
amount of each member country's fee is based on a “capital subscription
key” which reflects the respective country’s share in the total
population and GDP of the EU. These two determinants (population and GDP
share) have equal weighting. The ECB adjusts the shares every five years and
whenever a new country joins the EU.
The ECB marks its 501.5 tonnes of gold to the
market price each year, but the unrealized gain from the revaluation goes
into a special "Revaluation Account" which is credited to the NCB's
according to the subscription key. In other words, the NCB's own the ECB, use
it as their system's operational core, and benefit directly from the
revaluation of their share of the ECB's assets including its gold.
So hopefully you can see why it makes no sense whatsoever that, as the Marketwatch article says, a euro-zone central bank would
sell gold to the ECB. And even if gold had been transferred from an NCB to
the ECB, it wouldn't show up as a change on the consolidated balance sheet
referred to in that article!
Furthermore, the amount of gold *coins* that one of the NCBs sold last
week was all of €1 million. What's that, 820 coins? Most likely it was
simply a net sale of gold coins to the public.
Finally, try a Google search of the first part of that Marketwatch
headline, "ECB balance sheet grows", and you'll see just how many
analysts are incorrectly referring to the Eurosystem's
balance sheet as if it belongs to the ECB. And if you can't quite see how
this seemingly-innocuous incorrect view is detrimental to the usefulness of
one's analysis, just ask Texan any question you want to about the ECB. (j/k Texan ;)
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