BIS Taking in More Gold - who are the counterparties this time?

From Mineweb.com, by Rhona O'Connell:

The latest figures from the IMF show that the Bank for International Settlements' declared gold holdings are on the increase again. The BIS hit the headlines earlier this year when analyst Matthew Turner spotted figures in the BIS' Annual Report that showed the Bank's holdings of gold had soared as the Bank had carried out swaps with what turned out to be commercial counterparties (the initial interpretation was that it had come from other central banks). By the end of April, the BIS' net gold holdings stood at 468 tonnes, having been just 119 tonnes as recently as the end of November.

The BIS' gold holdings were more or less unchanged over the next three months, but they have been increasing again since June, rising from approximately 467t to 512t over the months to end-August, an increase of 45t.

As shown in the chart below, the nominal value of the gold at the end of August stood at almost $21 Bn, more than five times as much as at the end of October 2009, reflecting a four-fold increase in the tonnage held, allied to a 20% increase in the gold price.

On a very approximate basis, taking the monthly average price against the change in tonnage reported for the BIS shows the following monthly dollar increments (in $M):

Nov-2009	Dec-2009	Jan- 2010	Feb-2010	Mar-2010	Apr-2010	May-2010	Jun-2010	Jul-2010	Aug-2010
-33	1,249	5,999	3,036	1,908	92	-31	854	192	739

So while the most recent three months increases, totalling $1.8Bn, don't compare with the $12.2Bn of Dec-March inclusive, they nonetheless suggest that the BIS remains on the alert and is taking gold as collateral accordingly. Last time, the press reported that the counterparty banks included HSBC, Société Générale and BNP Paribas, swapping gold with the BIS against the dollar-deposits that the former banks were taking from the latter. The latest increases in BIS' gold is likely to represent similar exercises this time, as commercial banks seek to use the gold in their stewardship. (Not allocated metal, though, which is not available to be lent by the bank that holds the gold on the client's behalf).

The tonnage changes have been as follows:

Nov-2009	Dec-2009	Jan- 2010	Feb-2010	Mar-2010	Apr-2010	May-2010	Jun-2010	Jul-2010	Aug-2010
-0.9	35.7	173.0	85.2	53.2	2.4	-0.8	21.4	5.1	18.5

At the time, the reports of the swaps caused a drop in the gold price. Probably a more logical conclusion is that the implied use of gold as a hedge against counterparty risk, or equally the desire on the part of the BIS to optimise the rate of return on its currency holdings, points to the sustained role of gold in the financial system as a non-fiat currency. Not of itself enough to boost the price, but sufficient to sustain gold's role as a portfolio constituent.

Implied gold holdings at the BIS, tonnes, long term

Source: International Financial Statistics

Meanwhile the IMF continues to dispose of the balance of the gold that it has for sale; at the end of August there was just under 75 tonnes of metal remaining for disposal. The latest on-market transactions have been averaging 17.5 tonnes per month, so if this rate of sale continues, or more off-market transactions take place such as the recent ten-tonne sale to Bangladesh, then the IMF programme could easily be complete by the end of this year, leaving the way clear to for the official sector to be a net purchaser of gold over the whole of next year.