… 346 tonnes of gold at the BIS, 346 tonnes,
You take one down, sell it around, 345 tonnes of gold at the BIS!
This little footnote — from BIS’s latest annual report — is currently making waves in gold markets:
The Wall Street Journal reports that central banks have started using their gold reserves to raise cash — a record $14bn worth — from the Bank for International Settlements, the central bank’s bank.
The process is called a gold swap, and in this case involves central banks selling their gold to the BIS, with an agreement to buy it back at a later date. In return they get the money and pay some interest.
News of the swaps seems to have spooked gold markets, as some participants think it could mean BIS might sell — or has already sold — those 346 shiny tonnes. Quoth the Journal:
The BIS report could change investors’ perception of gold as an asset to protect against the impact of global sovereign-debt woes, said Nicholas Johnson, co-manager of Pacific Investment Management Co.’s CommodityRealReturn Strategy Fund, a mutual fund with about $16 billion in assets.
“Originally sovereign financial troubles were taken as unambiguously bullish” for gold, Mr. Johnson said . . . “But some are now rethinking this if the gold that sovereigns hold has been pledged as collateral to someone else who has more ability to liquidate those holdings.”
Others of course, think differently:
If the IMF was legally able to and leased this gold, I would agree with the fear of market sales as a means of bailing out euro banks or other entities.
Gold swaps are done with monetary authorities. Gold leases are done with “for profit entities” such as gold banks. Gold Swaps are usually undertaken by monetary authorities.
The gold is exchanged for foreign exchange deposits with an agreement that the transaction be unwound at a future time at an agreed upon price.
Able — or willing — to on-sell or not able to on-sell then. That is the question.
More on this to come.
Related links:
Gold swaps versus gold loans - IMF Committee on Balance of Payments
Central banks swap tons of gold to raise cash, surprising market – WSJ
European banks use gold reserves to raise cash – FT
Getting to the bottom of negative gold-leasing rates – FT Alphaville