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BIS gold swaps fall in January; data hints at price suppression in 2017

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Published : February 10th, 2019
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The recent monthly statements of account published by the Bank for International Settlements indicate that the bank is still actively trading in gold swaps, which the bank uses to gain access to gold held by commercial banks. There is not enough information in the monthly reports to calculate the exact amount of swaps, but based on the information in the January 2019 statement of account, just published --

https://www.bis.org/banking/balsheet/statofacc190131.pdf

-- the BIS' gold swaps are estimated to be 247 tonnes as of January 31, compared to about 275 tonnes at December 31, 2018.

This compares to estimates of 308 tonnes in November, 372 tonnes in October, 238 tonnes in September, and 370 tonnes in August 2018.


More background to the bank's recent history of using gold swaps is available here:

http://www.gata.org/node/18825

On February 3 GATA published comments from a former gold industry executive describing the activities of the BIS in gold swaps in earlier decades:

http://www.gata.org/node/18828

The former industry 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, according to this source, some swaps did not mark to market. This appears to have happened at least once in more recent times.

On March 31, 2017, the BIS annual report records that there were 438 tonnes of gold swaps, valued at 14,086.9 million Special Drawing Rights. Converting the SDRs into U.S. dollars is equivalent to a gold price per troy ounce of around $1,355. However, at that date the published market price of gold was around $1,245 so the swaps apparently 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 those gold swaps is equal to the highest market gold price during that 12 months, the price seen in the summer of 2016.

This seems an odd coincidence. But if the gold swaps were entered with the intent of trying to suppress the price of gold, then perhaps this coincidence does not appear so strange. Perhaps the BIS' counterparty to the swap was prepared to enter the transaction only if it was both entitled to the return of its gold swapped with the BIS but also was protected against 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 consistent with suppression being the underlying reason for the swap.

Of course the BIS will not be providing any information to clarify its activity in the gold market:

http://www.gata.org/node/17793

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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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