Irked by GATA, Bank of England denies gold loans, swaps since 2007

Section:

12:14p ET Wednesday, December 14, 2011

Dear Friend of GATA and Gold:

In further correspondence with our British friend James Bern, a Bank of England official this week indicated that the bank, as custodian of the United Kingdom's gold reserve, has not engaged in gold lending or swapping from 2007 through the middle of this year.

The letter, sent by e-mail by Ben Norman, deputy secretary for the bank's Public Communications and Information Division, also objects to GATA's characterization of the October 24 statement to Bern by another Bank of England publicist, Jackie Keating, which, GATA reported, confirmed that the bank is surreptitiously active in the gold market.

In the October statement Keating wrote that information about the Bank of England's gold swaps and leases, undertaken through the British government's Exchange Equalization Account (EEA), is "market sensitive" and its disclosure "would allow enquirers to find out what gold transactions have been taking place," thereby impairing the interests of both the British government and the bank's "private customers," to whom the bank "owes a duty of confidentiality." (See http://www.gata.org/node/10635.)

... Dispatch continues below ...



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In his letter to Bern this week, Norman called GATA's characterization of Keating's statement "completely unreasonable."

Yet Norman also echoed Keating's rationale for keeping the Bank of England's gold transactions secret, at least until the British government's Treasury should choose to disclose them. Norman wrote: "There is also a strong interest that certain financial markets participants would have in knowing about EEA gold transactions (whether sales, purchases, loans, swaps). If the bank were to reveal how much gold had been swapped or was on loan prior to the scheduled release of information, this would set a precedent to allow financial market participants to establish what (if any) gold transactions had been taking place -- potentially on a daily basis. Such disclosures could also, in my view, provide an unintended signal to the markets, and, in turn, be misinterpreted with ensuing potential harm to the government's financial interests."

While, as Norman indicates, the Bank of England may not have undertaken gold loans or swaps from 2007 through the middle of this year, the bank's new statement seems to acknowledge that, since the bank does not want to disclose contemporaneously any position the bank may have in the gold market, the bank still may be, like other central banks, intervening in the gold market surreptitiously at any particular time, including the present. Of course this long has been GATA's complaint, and of course most central bank business throughout the world, which includes a lot of market intervention, continues to be conducted in secret, precisely for the objectives of market manipulation.

Further, the Bank of England is disingenuous in its expression of concern about the market frontrunning of its gold transactions that might result from transparency. After all, while the bank's gold transactions are to be kept secret from the public and the market generally, they are no secret from the bank's own gold clients. The bank's own gold clients certainly know when, say, they have obtained a big gold loan from the bank and when they themselves might bomb the market with it, and with this insider knowledge they certainly can figure out how to position themselves in the market for maximum profit at the expense of market participants lacking this inside information.

In his letter to Bern, Norman notes helpfully that the most recent annual report for the Exchange Equalization Account, covering the 2010-11 financial year, shows that the account neither swapped nor loaned gold in that time, and that two years ago the chief of the Bank of England's Foreign Exchange Division, Michael Cross, remarked in a speech to the London Bullion Market Association that "gold lending as part of the government gold reserve management was suspended in 2007":

http://www.gata.org/files/Cross-Michael-BankOfEnglandInGoldMarket-2009.p...

So, Norman concludes, "It would be reasonable for you to infer from this that there are no EEA loans currently outstanding, although you would need to wait for EEA statistics to be published for this to be confirmed."

All this leaves open the questions of whether the bank or British government are able to draw upon the gold deposits made at the bank by the bank's own customers and whether the gold attributed to the Exchange Equalization Account is the only gold available to the British government for market intervention. But the lack of contemporaneous transparency in the Bank of England's gold dealings may be a big enough question.

At least the Bank of England must be credited for responding at such length and so cordially to ordinary public inquiries. That would never happen with the U.S. Federal Reserve.

Norman's letter to Bern has been posted here:

http://www.gata.org/files/BankOfEnglandLetter-12-13-2011.png

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

* * *

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