Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (137324)	11/10/2022 6:20:49 PM
From: Goose94	Read Replies (1) \| Respond to of 203376

Gold: BIS is nearly out of its gold swap business November 10th 2022 After 12 years in the gold swap business, the Bank for International Settlements seems to have just about gotten out. The bank's October statement of account, just published -- bis.org -- shows that the bank's gold swaps, which totaled 501 tonnes in January and have been falling sharply throughout the year, have crashed to only 7 tonnes as of October. The bank's gold swaps outstanding at September 30 were estimated to be 57 tonnes versus 75 tonnes and 56 tonnes as at August 31 and July 29 respectively. As is clear from Table B below, the level of swaps had been significantly higher in the first half of the year and the October total is easily the lowest in more than four years. Table A below highlights the level of gold swaps reported in the annual reports of the BIS all the way back to 2010, when the bank's use of gold swaps appears to have begun. At only one year-end since then, in March 2016, has the swap level been lower than it is as of October 2022. The BIS has been an active trader of significant volumes of gold swaps on a regular basis, and the recent data indicates that there is a distinct possibility that its trading in gold swaps soon will end entirely. The BIS half-year report to September 30, 2022, has also just been published and while it offers no direct comment on the use of gold swaps, its disclosures include confirmation that the BIS still holds 102 tonnes of its own gold and that very little of its activities in derivatives are with central banks. This latter disclosure offers support for the assumption that the bank's gold swaps, being derivatives, are with bullion banks rather than central banks. The reduction in the BIS' gold swaps could be due to the application of Basel III regulations to bullion banks. As is usually the case with the BIS, it seems unlikely that more information about the swaps will be released. ... Historical context The BIS rarely comments publicly on its gold activities, but its first use of gold swaps was considered important enough to cause the bank to give some background information to the Financial Times for an article published July 29, 2010, coinciding with publication of the bank's 2009-10 annual report. The general manager of the BIS at the time, Jaime Caruana, said the gold swaps were "regular commercial activities" for the bank, and he confirmed that they were carried out with commercial banks and so did not involve central banks. It also seems highly likely that the BIS' remaining swaps are still all made with commercial banks, because the BIS annual report has never disclosed a gold swap between the BIS and a major central bank. The swap transactions potentially have created a mismatch at the BIS, which may end up being long unallocated gold (the gold held in BIS sight accounts at major central banks) and short allocated gold (the gold required to be returned to swap counterparties). This possible mismatch has not been reported by the BIS. The gold banking activities of the BIS have been a regular part of the services it offers to central banks since the bank's establishment 90 years ago. The first annual report of the BIS explains these activities in some detail: bis.org A June 2008 presentation made by the BIS to poten tial central bank members at its headquarters in Basel, Switzerland, noted that the bank's services to its members include secret interventions in the gold and foreign exchange markets: gata.org The use of gold swaps to take gold held by commercial banks and then deposit it in gold sight accounts held in the name of the BIS at major central banks doesnt appear ever to have been as large a part of the BIS gold banking business as it has been in recent years, although the recent declines suggest this is changing. As of March 31, 2010, excluding gold owned by the BIS, there were 1,706 tonnes held in gold sight accounts at major central banks in the name of the BIS, of which 346 tonnes or 20% were sourced from gold swaps from commercial banks. If the BIS was adopting the level of disclosures made by publicly held companies, such as commercial banks, some explanation of these changes probab ly would have been required by the accounting regulators. This irony may not be lost on those dealing with regulatory activities at the BIS. Presumably the shrinkage of the BIS' gold banking business shows that even central banks now prefer to hold their own gold or hold it in earmarked form -- that is, as allocated gold. A review of Table B below highlights recent BIS activity with gold swaps, and despite the recent declines, the recent positions estimated from the BIS monthly statements remain large especially in early 2022 and the volume of trading has been significant. No explanation for this continuing use of swaps has been published by the BIS. Indeed, no comment on the bank's use of gold swaps has been offered since 2010. This gold is supplied by bullion banks via the swaps to the BIS. The gold is then deposited in BIS gold sight accounts (unallocated gold accounts) at major central banks such as the Federal Reserve. The reasons for this activity have never been fully explained by the BIS and various conjectures have been made as to why the BIS is facilt. One conjecture is that the swaps are a mechanism for gold secretly supplied by central banks to cover shortfalls in the gold markets to be returned to the central banks. The use of the BIS to facilitate this trade suggests of a desire to conceal the rationale for the transactions. As can be seen in Table A below, the BIS has used gold swaps extensively since its financial year 2009-10. No use of swaps is reported in the bank's annual reports for at least 10 years prior to the year ended March 2010. The February 2021 estimate of the bank's gold swaps (552 tonnes) was higher than any level of swaps reported by the BIS at its March year-end since March 2010. The swaps reported at March 2021 were at the highest year-end level reported, as is clear from Table A. ----- Table A Swaps reported in BIS annual reports March 2 010: 346 tonnes. March 2011: 409 tonnes. March 2012: 355 tonnes. March 2013: 404 tonnes. March 2014: 236 tonnes. March 2015: 47 tonnes. March 2016: 0 tonnes. March 2017: 438 tonnes. March 2018: 361 tonnes. March 2019: 175 tonnes March 2020: 326 tonnes March 2021: 490 tonnes March 2022: 358 tonnes ----- The table below reports the estimated swap levels since August 2018. It can be seen that the BIS is actively involved in trading gold swaps and other gold derivatives with changes from month to month reported in excess of 100 tonnes in this period. ----- Table B - Swaps estimated by GATA from BIS monthly statements of account Month .. Swaps & year in tonnes Oct-22 ..... /7 Sep-22 ...../57 Aug -22 ..... /75 Jul-22 ..... /56 Jun-22 ..... /202 May-22 ..... /270 Apr-22 ..... /315 Mar-22 .... /358 Feb-22 .... /472 Jan-22 ..... /501 Dec-21.... /4 14 Nov-21.... /451 Oct-21.... /414 Sep-21 .... /438 Aug-21 .... /464 Jul-21 .... /502 Jun-21 ..../471 May-21 ..../517 Apr-21 .... /472 Mar-21.... /490 Feb-21 ...../552 Jan-21 .... /523 Dec-20 .... /545 Nov-20 .... /520 Oct-20 .... /519 Sep-20...../ 520 Aug-20...../ 484 Jul-20 ..... / 474 Jun-20 .... / 391 May-20 .... / 412 Apr-20 .... / 328 Mar-20 .... / 326* Feb-20 .... / 326 Jan-20 .... / 320 Dec-19 .... / 313 Nov-19 .... / 250 Oct-19 .... / 186 Sep-19 .... / 128 Aug-19 .... / 162 Jul-19 ..... / 95 Jun-19 .... / 126 May-19 .... / 78 Apr-19 ..... / 88 Mar-19 .... / 175 Feb-19 .... / 303 Jan-19 .... / 247 Dec-18 .... / 275 Nov-18 .... / 308 Oct-18 .... / 372 Sep-18 .... / 238 Aug-18 .... / 370 The estimate originally reported by GATA was 487 tonnes, but the BIS annual report states 490 tonnes, It is believed that slightly different gold prices accoun t for the difference. * The estimate originally reported by GATA was 332 tonnes, but the BIS annual report states 326 tonnes. It is believed that slightly different gold prices account for the difference. GATA uses gold prices quoted by USAGold.com to estimate the level of gold swaps held by the BIS at month-ends. ----- As noted already, the BIS in recent times has refused to explain its activities in the gold market, nor for whom the bank is acting: gata.org Despite this reticence the BIS is almost certainly acting on behalf of central banks in taking out these swaps, as they are the BIS' owners and control its Board of Directors. This refusal to explain prompts some observers to believe that the BIS acts as an agent for central banks intervening surreptitiously in the gold and currency markets, providing those central banks with access to gold as we ll as protection from exposure of their interventions. It is possible that the swaps provide a mechanism for bullion banks to return gold originally lent to them by central banks to cover bullion bank shortfalls of gold. Some commentators have suggested that a portion of the gold held by exchange-traded funds and managed by bullion banks is sourced directly from central banks. By Robert Lambourne