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I have been checking on the changes that have taken
place to the gold banking business carried out by the Bank for International
Settlements since March 2009 and the bank's use of gold derivatives
(essentially all are gold swaps), which have grown from zero as of March 31,
2009. All the data in the table below is sourced from BIS annual reports and
from the bank's 2012 interim report published in early November. Here is a
link to it:
http://www.bis.org/banking/safinstats120930.pdf
In March 2009 the BIS held gold sight accounts --
unallocated gold -- with a number of major central banks, presumably those
based in traditional gold-trading markets. Apart from the bank's own gold,
the source of the gold sight accounts arose from gold that was deposited in
sight accounts with the BIS with all or most of it deposited with the BIS by
other central banks. Historically and especially during World War II central
banks used the BIS to act as an intermediary in the gold market to protect
against their gold sight accounts being confiscated or blocked by the bank
holding the gold deposit. So, as an example, during World War II the German
central bank held gold in a BIS sight account that was in turn deposited by
the BIS in London, and consequently this gold was not confiscated or blocked
by the United Kingdom government in the war.
Since March 2009 there has been a marked change in the source of the gold
deposited by the BIS with central banks in gold sight accounts. It has fallen
from 1,197.45 tonnes as of March 31, 2009, to
509.43 tonnes as of September 30, 2012. By March
2010 the BIS had sourced 346 tonnes of gold in the
form of gold swaps -- something that had not been done for
many years previously or at least not disclosed.
Yet in an article published in the Financial Times
on July 29, 2010, Jaime Caruana, head of the BIS,
said the swaps were "regular commercial activities" for the bank.
As can be seen from the table below, gold derivatives, essentially all being
gold swaps, have become a regular source of gold for the BIS to deposit in
gold sight accounts since this interview was given.
The decline in the amount of gold deposited with the
BIS in gold sight accounts by central banks accords with the often-claimed
desire of many gold owners either to take physical possession of their gold
or at least to move it into an allocated form of gold account such as a BIS
gold-earmarked account, which is excluded from the BIS's own balance sheet.
Also, by their nature the gold swaps entered by the
BIS provide the counterparty with a higher level of comfort. The
counterparties for the BIS gold swap can presumably account for the gold as
an owned asset, since the explanation of the gold swap in the BIS annual
reports is very specific and says, "The Bank has an obligation to return
the gold at the end of the contract." (So it would appear to meet the
definition of allocated gold.)
Hence, if the BIS could not get returned to it all
the gold it has deposited in sight accounts as of September 30, 2012, then it
would run the risk of having to obtain up to 393 tonnes
of gold on the open market to return to the gold swap counterparties. This
risk is not specifically considered in the BIS's own commentary on the risks
it faces.
In isolation this change in the mix of the sources
of the BIS gold used in its gold banking business cannot be said to prove anything.
But the reduction in the amount of gold deposited with the BIS in sight
accounts is consistent with a desire by owners to exert greater control over
their gold. Further, one could reasonably speculate whether gold swaps (and
their increased proportion as a source of gold for the BIS gold banking
business) have been used by the BIS to supply gold to avoid a default by a
central bank when being asked to return the unallocated gold held in a sight
account deposited with the BIS as the BIS has faced a reduction in that
source of unallocated gold itself.
Whatever the truth may be, the changes in the table
below are consistent with there being a tight
physical market for gold where certain central banks are taking action to get
a firmer grip on their metal.
* * *
Gold banking business of the Bank for International
Settlements March 31, 2009, to 30th September 2012. Excludes BIS-owned gold.
.
.
Totals in millions of Special Drawing Rights.
....................... 3/2009
..... 3/2010 ...... 3/2011 ....... 3/2012 ....... 9/2012
Third-party gold
deposited by BIS
in gold sight
accounts ....... 23,039.1 ... 40,219.9 ... 33,177.8 .... 31,881.7 ... 33,565.6
Gold deposited
in BIS gold sight
accounts ...... 23,039.1 ... 32,057
.... 21,264.3 ... 19,617.6 ... 18,948.3
Gold
derivatives ....... 0 ......... 8,162.9
..... 11,913.5 .... 12,264.1 ... 14,617.3
Total gold
deposited in gold
sight accounts and
derivatives .... 23,039.1 ... 40,219.9 .. 33,177.8 ...
31,881.7 ... 33,565.6
.
.
Tonnes
Third-party
gold deposited
by BIS in gold
sight accounts .. 1,197.45
..... 1,704.8 .... 1,139 ......... 923 ....... 902.43
Gold deposited
in BIS gold sight
accounts .......... 1,197.45 ..... 1,358.8 ....... 730
......... 568 ..... 509.43
Gold derivatives .. 0
................ 346 .......... 409 ........ 355
...... 393
Total third-party
gold deposited by
BIS in gold sight
accounts and gold
derivatives ..... 1,197.45
...... 1,704.8 ...... 1,139 ....... 923 ...... 902.43
Gold earmarked accounts
.............................. 212 ............. 212 .......... 297 ........ 323 ........
N/A
Robert Lambourne is a
British businessman and consultant to GATA.
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