A consultant to GATA (Gold Anti-Trust Action Committee) brought to our attention the fact that gold swaps at the BIS have soared from zero in March 2016 to almost 500 tonnes by August 2017 (GATA – BIS Gold Swaps). The outstanding balance is now higher than it was in 2011, leading up to the violent systematically manipulated take-down of the gold price starting in September 2011 (silver was attacked starting in April 2011).
The report stimulated my curiosity because most bloggers reference the BIS or articles about the BIS gold market activity without actually perusing through BIS financial statements and the accompanying footnotes. Gold swaps work similarly to Fed repo transactions. When banks need cash liquidity, the Fed extends short term loans to the banks and receives Treasuries as collateral. QE can be seen as a multi-trillion dollar Permanent Repo operation that involved outright money printing.
Similarly, if the bullion banks (HSBC, JP Morgan, Citigroup, Barclays, etc) need access to a supply of gold, the BIS will “swap” gold for cash. This would involve BIS or BIS Central Bank member gold which is loaned out to the banks and the banks deposit cash as collateral to against the gold “loan.” This operation is benignly called a “gold swap.” The purpose would be to alleviate a short term scarcity of gold in London and put gold into the hands of the bullion banks that can be delivered into the eastern hemisphere countries who are importing large quantities of gold (gold swaps outstanding are referenced beginning in 2010).
I wanted dig into the BIS financials and add some evidence from the GATA consultant’s assertions because, since 2009, there has been a curious inverse correlation between the amount of outstanding gold swaps held by the BIS and the price of gold (as the amount of swaps increase, the price of gold declines). You’ll note that in the 2009 BIS Annual Report, there is no reference to gold swaps so we must assume the amount outstanding was zero. By 2011 the amount was 409 tonnes.
The gold swaps enable the BIS to “release” physical gold into the banking system which can then be used to help the Central Banks manipulate the price of gold lower. This explains the jump in BIS gold swaps between March 2016 and March 2017 and the drop in the price of gold from August 2016 until early July 2017. It also explains the rise in the price of gold between July and September this year, which correlates with a decline in the outstanding gold swaps between April and July . Finally, the hit on gold that began earlier this month coincides with a sudden jump in BIS gold swaps in the month of August. (Note: there would be a short time-lag between the gold swap operation and the amount of time it takes to “mobilize” the physical gold)
The graphic below shows the increase in gold swaps from March 2016 to March 2017:
As you can see, the total amount of the gold loans outstanding increased by 14.1 billion SDRs (note: the BIS expresses its financials in SDRs). The accompanying note explains that most of this gold loan is comprised of an increase in the BIS’ gold swap contracts outstanding.
I find it interesting that the reports of gold backwardation in London (see James Turk’s interviews on King World News) and the backwardation I have observed between the current-month (delivery month) Comex gold contract and the London gold fixings over the past several months correlates well with the sudden jump in gold swap activity at the BIS.
Backwardation in any commodity market indicates that the demand for delivery of the underlying commodity is greater than the near-term supply of that commodity. It’s hard to ignore that the backwardation observed on the LBMA and with Comex gold delivery-month contracts has been accompanied by soaring gold demand from India, as reported by the Economic Times of India (article link): Gold Imports Jump Three-Fold in April-August.
Furthermore, it appears as if the BIS gold swap activity continued to increase between March 2017 and August 2017, as the BIS’s August Account Statement shows another 2.2 billion SDR increase in amount of outstanding gold loans (a BIS monthly account statement only reports the balance sheet with no accompanying disclosure). These loans primarily are swaps, per the disclosure in the 2017 Annual Report.
However, this jump in gold swaps between March and August is somewhat misleading. The outstanding amount of loans declined from 27.2 billion SDRs at the end of March to 24.6 billion SDRs at the end of July. The price of gold rose over 11% between July and early September. By the end of August, the BIS balance sheet shows 29.3 billion SDRs. A jump of 4.7 billion SDRs worth of gold swaps.
It was around April that the World Gold Council began to forecast that India’s gold importation would drop to 95 tonnes per quarter starting in Q2. As it turns out, India imported 248 tonnes of gold in Q2 2017. This number does not include smuggled gold. Please note the curious correlation between the jump in BIS gold swap activity at the end of the summer and the unexpected surge in Indian gold imports.
In my view, there is a direct correlation between this sudden leap in the amount of gold swaps conducted by the BIS between July and August and the price attack on gold that began two weeks ago. The gold swaps provide bullion bar “liquidity” to the bullion banks who can use them to deliver into the rising demand for deliveries from India, China, Turkey, et al. This in turn relieves the strength and size of “bid” on the LBMA for physical gold which in turn makes it easier for the same bullion banks to attack the price of gold on the Comex using paper gold. This explains the current manipulated take-down in the price of gold despite the rising seasonal demand from India and China.
It’s complete madness, they’ll never get that gold back at these prices. I assume it’s certain Western Governments supplying the BIS with the physical gold originally? I noticed that the implied lease rates over at sharelynx started dropping a week or so ago and figured a raid was coming, but your article gives an idea of the underlying dynamics that are playing out.
I’m pretty sure that some of that gold will go into the private hands of the banks CEOs et al. and not only to satisfy the demand on the exchanges. They will sell it back to the BIS at multiple $/SDR-values.
Wow..same ole same ole..paper Joo pushers continue their alchemy while the brain dead apathetic ussa sheeple herd along. 5yr downward trend line broken..moon? Sit the fuck down this is gold not crypto. For such a scare resource these Joo bankers sure seem to able to abate any physical shortage..with well…physical! How is it that the east can consume sooooo much phyzz 4 what seems enternity now if there is such a finite supply..? Fuck gold and fuck silver.. 5yrs taking it in the ass.
Rare, beautiful and precious for the cost of production and you consider that taking it in the ass. You must be overjoyed taking it in the ass as I am buying my precious at cost. Let the manipulation continue please. You may want to buy some vasoline.
Only so much u can stack..what good is it if it’s always under bankster manipulative control? So yes for those of use have been prudent with our economic energy and taken refuge in a vehicle that represents that (PM) you’ve been ass raped 4 6+ yrs. If don’t hold enough by now..well..go fuck yourself I’m ready.
Once again, thank you for your awesome research, Dave! My guess to your title question is…because they want to undermine the new petro\yuan\gold contract that was anmounced…well….two weeks ago? They are simply buying time for the PTB at this point, although I can’t imagine how they will be able to sabotage the BRICS banking system now that almost every nation hates us. Wouldn’t be surprised if Germany hops on over, since they will need fuel for the coming winter. The rest will follow after that.
Thanks for the kudos, DWD – I appreciate it. Not sure the specific motive for smashing gold this time around – I don’t think they can undermine the new contract. Pushing the price down enables China et al to accumulated more at a better price.
Could it be that some of the gold on the eastern exchanges is actually bought by western banks; this would represent a shift of the fizz to the east, while the west would not have “lost” it all as many proclaim; that way the gold will be where it will be traded (and needed)? Just a thought.
And yes, I totally back DWD. As a recent subscriber to the SMJ and a longtime reader of your site – thanks for the great work you do, it is much appreciated!
Once again, I agree wholeheartedly. Well, then, apart from what we already know to be true…my other guess would be to take advantage of the rising demand for physical cash balances in the United States that is just beginning to take place in the financial system. As you know, it’s already happening in the retail sector. Hence the BIS is pretty smart; they’re aware that since most dollars are digital IOUs for physical cash built upon fractional-reserve accounting, that the dollar will have a huge spike upwards before the printing press really ramps up here at home. After all…physical cash (not digital accounts) is considered “legal tender” for all debts private and public…and much of it (if not most of it) resides overseas (soon to return here, no doubt). So in a way…they’re beating the rush to spend the dollar here…before the rest of the world does it for them.
Moreover, if you’re really concerned about beating back the hordes of angry pissed voters in the future…then it would behoove you to acquire as much real wealth (such as land, food, ammo, etc) NOW as opposed to later (especially since a rising dollar means bargain prices). So…they may not even care about getting the gold back at this point….while you and I have front-row seats the end of the Union as we know it.
But that’s my two-cents at least. Time for a burger!
Looks like the BIS just swapped 438 MT of the 443MT of physical earmarked, allocated gold they were custodians for on behalf of their brethren.
This is a great find on BIS website! For the past 4 years, it has been hard to find this information except in the BIS Annual Report ending March 31.
Conundrum – In the link above BIS 87th Annual Report ending March 31, 2017 on page 179 (listed in lower right corner), the Balance Sheet indicated that on the liability side “gold deposits” were 10,227.6M SDR as of March 31, 2016. As of August 31, 2017
https://www.bis.org/banking/balsheet/statofacc170831.pdf the “gold deposits” are 10,274.7M SDR. Gold deposits comprise unallocated sight and fixed-term
deposits of gold from central banks.
During that same period on the asset side , “Gold and Gold Loans” went from 13,176.80M SDR to 29,399.3M SDR – plus 123%
So how does the BIS loan out an additional 16,222.5M SDR in gold when its gold deposits only increased by 47.1M SDR?
Gold is included in the balance sheet at its weight in gold
(translated at the gold market price and USD exchange rate
into SDR) and USD gold price to my knowledge didn’t increase in SDR terms by 123%.
Possibly the Off-balance sheet item physical “Gold bars held under earmark arrangements” on page 212 of the annual report gives a clue. Gold bars held under earmark arrangements comprise specific gold bars which have been deposited with the Bank on a custody basis. They are included at their weight in gold (translated at the gold market price and the USD exchange rate into SDR). At 31 March 2017, gold bars held under earmark amounted to 397 tonnes of gold (2016: 443 tonnes).
Looks like the BIS just swapped 438 MT of physical earmarked, allocated gold they were custodians for on behalf of their brethren