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Libertarian_Guard
8th July 2010, 12:11 AM
Gold swap mystery deepens as BIS gets correction from Wall Street Journal
Submitted by cpowell on Thu, 2010-07-08 02:41. Section: Daily Dispatches
10:47p ET Wednesday, July 7, 2010

Dear Friend of GATA and Gold:

The Wall Street Journal this evening updated and corrected its report about the gold swaps undertaken by the Bank for International Settlements, disclosing an e-mailed statement from the BIS stating that the swaps were with commercial banks, not central banks as the newspaper first reported.

The updated story suggests that some puzzlement continues about the swaps:

"The enormous amount of gold involved, nearly tripling what the BIS itself owns, left many market participants wondering about the nature of the deals. The BIS declined to identify the commercial banks involved. ... It isn't clear what prompted the banks to borrow from the BIS instead of their central banks."


Further, without citing authority the paper says "the gold hasn't entered the open market," but "if the banks that loaned the gold are for some reason unable to make good on the loan, the BIS could opt to sell the gold in order to get its money back, which could amount to flooding the market with an unexpected boost to the global supply."

But gold being money that for years has been appreciating against nearly all currencies, as noted for you a few minutes ago here --

http://www.gata.org/node/8798

-- why would any institution want to sell gold "to get its money back?" -- unless, of course, "flooding the market" and suppressing the gold price wasn't the real objective?

Another unanswered question is where the European commercial banks got all that gold, "349 metric tons ... nearly tripling what the BIS itself owns." The European commercial banks aren't known for holding that much metal on their own account. (If you rent a safe-deposit box at a European commercial bank, you might want to check its contents in the morning.)

While the story has changed in an important way, the first principle of journalism hasn't, and journalists here haven't yet demanded information from the primary sources, the BIS and the commercial banks themselves. Nor has there been any change in the conclusion that must be drawn from the story so far. That is, the secrecy and the involvement of the BIS, an admitted gold market rigger, impugn the transaction as part of another gold market rigging scheme.

The Wall Street Journal's updated and corrected story is appended.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

http://www.gata.org/node/8799

http://online.wsj.com/article/SB10001424052748704545004575353403943560776.html

Gknowmx
8th July 2010, 03:50 AM
Thanks. I read this article yesterday in the Journal and it seemed odd. Just another reason for me to end my WSJ subscription. The lack of journalism and drop in quality since Murdoch took over is awful.

It is not like BIS and the Journal are alone in getting the facts straight. I listened to Jeff Christian dismantle GATA's Murphy on Financial Sense a couple of months ago. It was painful to listen to. So, at this piont, I don't know who to believe. I do like GATA's questioning, I am just not sure I trust them to find the right answers.

Saul Mine
8th July 2010, 10:15 AM
While the story has changed in an important way, the first principle of journalism hasn't, and journalists here haven't yet demanded information from the primary sources, the BIS and the commercial banks themselves. Nor has there been any change in the conclusion that must be drawn from the story so far. That is, the secrecy and the involvement of the BIS, an admitted gold market rigger, impugn the transaction as part of another gold market rigging scheme.

Well, I'm glad they are keeping their fiction straight.

Libertarian_Guard
9th July 2010, 06:11 AM
In its 2010 annual report, the Bank of International Settlements said that "gold, which the bank held in connection with gold swap operations, under which the bank exchanges currencies for physical gold," stands at 8,160.1 million in special drawing rights, equivalent to 346 tonnes this year, up from nil in 2009.” Apparently this amount has now climbed to 382 tonnes since the report was issued.

Swaps – What are they and who does them?



Swaps are financial instruments that allow for the exchange of one asset for another, in this case, gold for currency. They are not gold leasing, futures or options [which the 1999 and 2004 Central Bank Gold Agreement states would not be increased – The 2009 did not contain the statement]. Swaps could be undertaken by the signatories of the CBGA. as these were not included in any of the three Agreements.



Gold swaps are usually undertaken between central banks: One central bank exchanges foreign exchange deposits (or other reserve assets) for gold with an agreement that the transaction be unwound at an agreed future date, at an agreed price.



The monetary authority acquiring the foreign exchange will pay interest on the foreign exchange received, the rate of which is currently very low. Gold swaps are usually undertaken when the cash-taking central bank may want foreign exchange but does not wish to sell outright its gold holdings.



The Wall Street Journal informs us that the B.I.S. did these swaps with commercial banks. We know of no commercial bank that has 382 tonnes of gold on their books. It is likely then that should these commercial banks have been in the deal, they would have been acting for a central bank [or several over time] who wished to remain anonymous.


The B.I.S. received the gold into its safekeeping for the nation that required the foreign exchange for the swap period. Swaps of this nature are renewable once the time runs out, so it is impossible to say how long the swap will last for. The central bank that undertook the swap would have to be certain that it could return the currencies to get the gold back at some point in the future. If that country defaulted, then and only then could the B.I.S. go ahead and sell this gold. Any sale in the open market would be trumpeted loudly to all as well as reported in the Press or by the World Gold Council, B.I.S. or I.M.F.

Why use gold and not currency?

The financial crisis has led to a decline in the number of credit-worthy counterparties and a reduction in credit lines these counterparties can offer. This is significant in a world where credit risk and debt problems have been the subject of banker’s fears since the appearance of the Greek debt crisis. For someone in the trouble Greece is, gold swaps allow a central bank’s reserves to be lent in a credit-secure fashion. In other words, a gold swap allows the lender of currency to benefit from greatly reduced credit risk, as the gold can be held in an allocated account, usually at the Bank of England. The currency deposit is secured with gold throughout the life of the deposit.



Any country such as Ireland, Portugal, Spain, Italy, the U.K. and the U.S.A. can follow this route. Yes, sales may not be permitted for fiscal reasons under Eurosystem rules, but these are not sales, but swaps. So, of the utmost importance is just who swapped this gold? Could it be one of the countries we just mentioned? If so, their situation is far graver than previously thought. The implication is that the collateral they offered just wasn’t good enough, so they had to use their gold. This is major news for the monetary system.



The Significance of the Transaction

What is significant about this or these transactions is that gold is being used in international settlements after so many decades of being sidelined in the monetary system! The transaction itself confirms that gold is being used in international settlements, which is a dynamic confirmation of gold's return to the monetary system. A "Swap" might be the first desperate step in such a transaction with the swapping bank hoping to repay the foreign exchange, but should it fail, the B.I.S . would have to decide either to keep the gold on its books or to sell it. Again, keeping it on its books is part confirmation that gold is active again on the monetary system, a big boost by itself! Gold is back and alive in the monetary system!


What appears to have really happened is that one nation or more needed foreign exchange to counter some shortfall in its accounts and raised these funds as a short-term liquidity measure, believing that it would be able to return the currency and receive its gold back. The gold would then be returned at the conclusion of the swap period in return for the currencies swapped. If it fails to return these funds to the BIS, then the BIS could discreetly place the gold with another central bank, should it not want to keep the gold. If it did so, the BIS would simply report its disposal of the gold, the originating central bank would report the drop in its gold reserves and the gold buying bank would report its increase in the reserves.

This puts the transaction into an entirely different category. It seems that one or more of the developed world’s central bank’s credit is not good enough for other governmental institutions. If word got out as to which this country is, then the financial markets would go into quite a spin, shaking the global financial system to its core. No wonder the B.I.S. is keeping such a low profile!


http://news.goldseek.com/GoldForecaster/1278723600.php

http://news.goldseek.com/GoldForecaster/1278723600.php

I don't know why this line is through the end of my cut & paste or the link. But the link is good.

Steal
11th July 2010, 05:43 PM
secret gold swap (http://www.telegraph.co.uk/finance/markets/7884272/Secret-gold-swap-has-spooked-the-market.html)

uranian
30th July 2010, 02:21 PM
Financial Times Says European Banks Lent Their Customer's Gold to the BIS (http://www.ft.com/cms/s/0/3e659ed0-9b39-11df-baaf-00144feab49a.html)


The gold used in the swaps came mainly from investors’ deposit accounts at the European commercial banks. Some investors prefer to deposit their gold in so-called “allocated accounts”, which restrict the custodian banks’ ability to use the gold in their market operations by assigning them specific bullion bars. But other investors prefer cheaper “unallocated accounts”, which give banks access to their bullion for their day-to-day operations.

so the venerable FT is stating here that the gold used for these BIS swaps actually belonged to private individuals, and was sold by the banks holding gold on behalf of those individuals, presumably without their knowledge. god help anyone with an unallocated account, when the reserve ratio is for paper gold to real gold is less than a per cent and this is what the custodians get up to.

http://3.bp.blogspot.com/_H2DePAZe2gA/TFMcsjgPJUI/AAAAAAAAN60/Asru1wrWwc0/s1600/aefe6832-9b59-11df-8239-00144feab49a.gif

more thoughts over at the excellent jesse's cafe (http://jessescrossroadscafe.blogspot.com/2010/07/european-banks-lent-their-customers.html).