by Robert Lambourne, Gold Seek:
From the information contained in the recently published March 31 and April 30 statements of account of the Bank for International Settlements —
https://www.bis.org/banking/balsheet/statofacc230331.pdf
https://www.bis.org/banking/balsheet/statofacc230430.pdf
— the bank’s gold swaps can be estimated at 78 tonnes as of March 31 and 135 tonnes at April 30. These compare to the 136 tonnes estimated as of February 28.
TRUTH LIVES on at https://sgtreport.tv/
Evidence of the significant trading carried out via BIS gold swaps is provided by the changes since October 2022 in the volumes of swaps each month. On October 31, 2022, there were an estimated 7 tonnes of swaps outstanding, which increased to 105 tonnes at November 30 and then fell back to none at December 31.
So far in 2023 these significant changes have continued, with 103 tonnes of gold swaps estimated as of January 31, followed by the 136 tonnes as of February 28, 78 tonnes as of March 31, and 135 tonnes as of April 30.
Once again it seems reasonable to suspect that the BIS has entered these swaps on behalf of the U.S. Federal Reserve.
The basic transaction that the BIS undertakes is to swap dollars for gold from a bullion bank and then deposit the gold in a gold sight account at a central bank, almost certainly being the central bank that is using the BIS to execute the gold swap on its behalf.
Given the volatility in recent months in the level of gold swaps reported by the BIS, it seems likely that the swaps are mainly of a short duration. Why a central bank needs the BIS to undertake these gold swaps isn’t clear, but the swaps seem likely to be tied to short-term trading needs. This could include actions to suppress the gold price.
Using the April 30 gold price of $1,990 (per USAGold.com), the 136 tonnes of BIS gold swaps are valued at about $9 billion. Hence it is evident that the recent volatility in BIS gold swaps is significant and shows that gold remains a significant monetary asset.
As ever with the BIS, it remains unlikely that more information about the reasons for the bank to undertake these transactions, presumably on behalf of a central bank client, will ever be provided. This secrecy implies that central bank gold policy involves much deception of the public and the markets — that it is currency market intervention for which the BIS provides camouflage.
The worsening finances of Western nations, especially the United States, may reduce the appeal of gold swaps to the BIS and the central bank or banks for which the BIS has been acting.
The recent strength of the gold price together with the conundrum facing the Federal Reserve about raising dollar interest rates must reduce the appeal of having to return swapped gold to bullion banks. Despite its rhetoric about pushing interest rates higher, the Fed needs to avoid more erosion of confidence in the U.S. Treasuries market when the U.S. government’s rising debt recently has been so controversial. The U.S. Treasury Department’s April report demonstrates the continuing trend of higher interest costs:
https://www.fiscal.treasury.gov/files/reports-statements/mts/mts0423.pdf
Because of the special measures taken to avoid breaching the former debt ceiling, it seems likely that the portion of the underlying interest cost payable to government-sponsored trust funds has been underreported recently, but this will presumably be corrected in June and then a fuller picture of the growing interest cost will be clear. The cumulative interest charge on the externally held debt is up by 42% compared to the same period in 2022 and indicates the problem that higher interest costs cause for U.S. government borrowing.
In these circumstances the room for the Fed to raise interest rates much more seems restricted and hence it seems that the BIS and some of its shareholders might be questioning the role of the bank in these swaps and the obligation to make future deliveries of gold, since the Fed seems unlikely to move interest rates high enough to contain inflation.
Indeed, a cynic might claim that the recent deal on the federal government debt makes it easier to defend a banking crisis by allowing the U.S. government to offer further bank deposit guarantees. The debt ceiling deal may even make a revaluation of gold easier for the United States to carry out.
