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Robert Lambourne: BIS gold swaps and derivatives fall slightly in June but still unusually high

Section: Documentation

By Robert Lambourne
Sunday, July 26, 2020

The gold swaps and derivatives position of the Bank for International Settlements, which reached a three-year high in May, fell slightly in June, according to the bank's statement of accounts for the month:

The BIS, which acts as a broker for many central banks, is estimated to have reduced its position in gold swaps and gold-related derivatives to 391 tonnes in June, down 21 tonnes from the 412 tonnes estimated at the end of May.

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The bank's use of gold swaps and derivatives still shows a robust increase in the last 13 months, In May last year it was only 78 tonnes.

The BIS uses gold swaps and gold derivatives to gain access to gold held by commercial banks and then deposits this gold in gold sight accounts held on behalf of the bank at major central banks such as the Federal Reserve.

These transactions create a mismatch at the BIS, which ends up being long unallocated gold (the gold held in BIS sight accounts at major central banks) and short allocated gold (gold required to be returned to its swap counterparty).

This mismatch has to date not been reported in the bank's annual reports.

This year the BIS published a working paper titled "Central Bank Swaps Then and Now: Swaps and Dollar Liquidity in the 1960s” by Robert N. McCauley and Catherine R. Schenk, which is posted on the bank's internet site:

The introduction to the paper states the following with the use of boldfaced italics for emphasis:

“We profile the Federal Reserve’s swap lines since 1962. We consult not only Fed sources, but also Bank of England, Swiss National Bank and Bank for International Settlements archives. We provide the first systematic analysis of the Fed's eurodollar operations in the 1960s through swap lines. The BIS served the Fed as an operating arm, taking credit risk as it placed eurodollar deposits to stabilise offshore dollar yields in advance of year- or quarter-end window-dressing. While short-lived, these operations have a very modern ring."

While the scope and content of this working paper are not directly relevant to the use of gold swaps by the BIS, the paper does highlight the close relationship between the Federal Reserve and the BIS. The paper emphasizes that the BIS has acted historically on behalf of the Federal Reserve and has done so via swaps, and crucially has been prepared to take on credit risk.

This raises conjecture that the use of gold swaps by the BIS is also driven by the Fed.

The paper provides no proof that this is the case, but that the BIS has never offered any comment on its exposure caused by being long unallocated gold and short allocated gold may well be explained by the Federal Reserve's being both the sole recipient of the unallocated gold placed in sight accounts by the BIS as well as the most powerful central bank. The BIS auditors who must satisfy themselves that the bank can cover its mismatch between allocated and unallocated gold even in extreme market conditions presumably would see the Fed as being capable of supplying as much gold as the BIS would require once the gold swaps were terminated.

There is insufficient information revealed in the BIS' monthly reports to calculate the exact amount of swaps, but as noted above, based on the information in its statement for June, the bank’s month-end gold swaps are estimated to be about 391 tonnes.

The table below reports the estimated swap levels since August 2018, wherein it can be seen that the May 2020 swaps are the highest in this time frame and the June level is the second highest. It can also be seen that the BIS is actively involved in trading gold swaps and other gold derivatives with changes from month to month in excess of 100 tonnes in this period.


Month ..... Swaps
& year .... (tonnes)

Jun-20.... / 391
May-20.... / 412
Apr-20.... / 328
Mar-20.... / 332*
Feb-20.... / 326
Jan-20.... / 320
Dec-19.... / 313
Nov-19.... / 250
Oct-19.... / 186
Sep-19.... / 128
Aug-19.... / 162
Jul-19..... / 95
Jun-19.... / 126
May-19.... / 78
Apr-19..... / 88
Mar-19.... / 175
Feb-19.... / 303
Jan-19.... / 247
Dec-18.... / 275
Nov-18.... / 308
Oct-18.... / 372
Sep-18.... / 238
Aug-18.... / 370

* The estimate originally reported by GATA was 332 tonnes, but the BIS Annual Report states 326 tonnes. It is believed that this difference arose because the gold price used to calculate the GATA estimate was lower than the price used by the BIS. GATA uses gold prices quoted by to estimate the level of gold swaps held by the BIS at month-ends.


More background on the bank's history of using gold swaps is available here:

On February 3, 2019, GATA published comments from a former gold industry executive describing the activities of the BIS in gold swaps in earlier decades:

The former executive wrote: "Effectively this process created a supply of 'paper gold' -- sometimes but not always marked to market -- that had a depressing effect on the gold price."

The BIS refuses to explain its activity in the gold market -- its objectives and underlying parties in interest:


Robert Lambourne is a retired business executive in the United Kingdom who consults with GATA about the involvement of the Bank for International Settlements in the gold market.

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