Father of Darkness has a piece on the gold swaps that coincides with your view:
acting-man.com
The Wall Street Journal …
… reports that in the back of a 216 pages long BIS (Bank for International Settlements) report, a little note was buried about gold swaps to the tune of 349 metric tonnes. Apparently some central banks in the euro area (although they are not identified in the report) have swapped their gold for ready cash of $14 billion for reasons unknown, but likely connected to the sovereign debt crisis in Europe.
Not surprisingly, the WSJ is ready with giving us a bearish spin on this event:
“While the use of swaps has no practical implications for the gold market, the report helped weigh on gold prices, which have already come under pressure since reaching a peak last month. The prospect that the gold isn't locked up in central-bank vaults as investors thought — and that it may, in an extreme case, be seized and sold on the open market by the BIS — gave some investors pause.”
These 'investors' that are now on 'pause' (some of whom are quoted in the report) evidently haven't thought this event properly through. First of all, 350 tons of gold is so little in terms of the gold market's overall size that it matters about as much as the IMF's 400 ton sale: namely somewhere between not at all and not much. Secondly, the idea that the BIS will 'seize' the gold, and in the highly unlikely event of such a seizure be eager to exchange it for more paper with ink slapped on it is somewhat dubious by itself. As Philip Klapwijk of the GFMS (Gold Fields Mineral Services) sagely remarks in the WSJ report:
“The sharp increase in January, when most of the borrowing took place, coincides with a flare-up in worries about a sovereign-debt crisis in Greece spreading throughout Europe. At that time, borrowing costs soared and liquidity tightened. Some central banks may have begun to fret, and chose to turn some of their holdings to cash as a standby, said Philip Klapwijk, executive chairman of GFMS Ltd., a London-based metals consultant. "It suggests a bit of a last-resort measure," Mr. Klapwijk said. |
