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Robert Lambourne: BIS gold swaps fell in September as bank's substantial trading continued

Section: Daily Dispatches

By Robert Lambourne
Wednesday, November 1, 2023

Active trading in gold swaps by the Bank for International Settlements, the central bank of the central banks, continued in September.

From information in the BIS statement of account for the month,  published this week —

-- it is estimated that the bank's gold swaps fell 33 tonnes in the month, from 129 to 96 tonnes.

The BIS' gold swaps had fallen to zero as of December 31, 2022, and reached their peak for 2023 so far of 188 tonnes as of May 31.

It remains likely that the BIS has entered these swaps on behalf of the U.S. Federal Reserve. There is no evidence to suggest that any other major central bank is actively trading this much gold, and so far in 2023 many central banks have been accumulating physical gold.

... Dispatch continues below ...


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The basic transaction that the BIS is believed to undertake is to swap dollars for gold transferred from a bullion bank, then to deposit this gold in a gold sight account at a central bank, presumed to be the Fed but almost certainly being the central bank that is using the BIS to execute the gold swap on its behalf.

Given the recent volatility in the levels of BIS gold swaps, it seems likely that most are of short duration. Why a central bank needs the BIS to undertake gold swaps isn't clear, but the swaps are likely connected with short-term trading needs, which could include suppressing the gold price.

The gold price decreased from $1,940 at August 31 to $1,849 at September 29 (per The volatility in the volume of swaps is clear from a review of Table B below. Volumes of swaps in 2023 are well below the average seen in the preceding four years but they remain significant.

This trading has not been officially explained by the BIS, and thus may be related to efforts to drive the gold price down in recent months. Much of GATA's research on gold price suppression indicates that an active policy of price suppression was implemented more than 30 years ago and was meant primarily to help suppress interest rates. This article from 2005 highlights work in this area by former U.S. Treasury Secretary and Harvard University President Lawrence Summers:

It also remaining relevant are the following remarks made in a speech by Summers on September 8, 1999, as reported in the book The Wealth of Progressive Nations: The Collected Lectures of Lawrence Summers." The remarks below are from the section of the speech titled "A New Economic Paradigm."

"Most important of all, the Clinton-Gore administration has established a new paradigm for the management of our nation's budget, with enormous cumulative benefits for our economy and our citizens. It has become a commonplace to remark on how exceptional today's 4.2% unemployment rate is relative to any expectation at the beginning of the decade. It is no less remarkable that today, after 8.5 years of expansion, long-term interest rates are around 2 percentage points lower than they were at its start."

From this it is reasonable to conclude that keeping interest rates "lower" was considered a priority and succeeding at it was "remarkable." While this is not proof that gold price suppression was undertaken specifically to reduce interest rates, it highlights that in any case reducing interest rates was a priority.

In this context the following report issued by GATA in 2007 concerning an analysis of the gold market by Frank Veneroso is worth rereading as it confirms that GATA's primary assertions about gold price suppression are plausible:

Using the September 29 gold price of $1,849, the 96 tonnes of BIS gold swaps are valued at about $5.7 billion. (The corresponding value at August 31 was around $8 billion.) So the recent trading in BIS gold swaps is of high monetary value and shows that gold remains a significant monetary asset still much traded by central banks.

As ever with the BIS, it remains unlikely that more information about why the bank undertakes these transactions will ever be provided. This secrecy implies that central bank gold policy involves much deception -- that it could be currency market intervention for one or more central banks for which the BIS provides camouflage.

For example, the recently published BIS 2023 annual report does not provide any information on the gold swaps other than confirming that swaps covering 77 tonnes of gold were in place as of March 31, 2023.

The worsening finances of Western nations, especially the United States, may reduce the appeal to the BIS of undertaking gold swaps and possibly even reduce the appeal of swaps to the central bank or banks for which the BIS has been acting. So a report issued by GATA in 2012 is worth revisiting as it highlights the acknowledgment of gold price suppression by a former chairman of the BIS, Jelle Zijlstra, a Dutch politician, economist, and central banker. It seems likely that BIS management understands what the swaps are being used for and why they require camouflage:

The continuing conundrum facing the Federal Reserve about raising dollar interest rates again should reduce the appeal to the Fed of having to return swapped gold. 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 ever-increasing debt has been so controversial recently. The Treasury Department's July report highlights a cumulative deficit of $1.695 trillion featuring lower cumulative revenue than during the same period a year ago, higher cumulative expenditures, and much higher interest costs pushed up by the higher interest rates set by the Fed:

This report arguably fails to highlight the full extent of the negative trends. Please refer to Appendix A for further remarks on this topic, which suggest that the underlying deficit is possibly already around $2.1 trillion.

In these circumstances the room for the Fed to raise interest rates further 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 may be unable to move interest rates high enough to contain inflation. One factor is the evidence of recently increased prices for oil and a possible trend of even higher prices because of falling U.S. shale oil production combined with the impact of the fighting in Israel and Gaza.

The suspension of the federal government's debt ceiling makes it easier to defend against a banking crisis by allowing the U.S. government to offer additional bank deposit guarantees. The debt ceiling deal may even make a revaluation of gold easier for the United States to carry out.

Again, it seems appropriate to note that a report titled "Living with High Public Debt" authored by Serkan Arslanalp and Barry Eichengreen was published in August by the Federal Reserve Bank of Kansas City. This report reinforces just how difficult it is to handle the present situation of high federal government debt and with spending far in excess of revenue. The report can be found at the Kansas City Fed's internet site here --

-- and at GATA's here:

Here is an excerpt from the conclusions:

"Looking forward, the challenges are daunting. Given aging populations, governments will have to find additional finance for healthcare and pensions. They will have to finance spending on defense, climate change abatement, and adaptation, and the digital transition. A growing number of low-income countries are already in debt distress.

"Living with high public debt therefore means avoiding steps that make a bad situation worse. This means minimizing unproductive public spending. It means targeting social transfers as a way of limiting pressures on the expenditure side. It means limiting contingent liabilities by, inter alia, adequately regulating banks and avoiding recapitalization costs.

"It means contemplating tax increases where revenues are low by international standards. It means further developing financial markets where markets are underdeveloped and where a diverse population of local investors in debt securities is absent. It means embracing legal and procedural changes that streamline and speed restructuring for countries whose debts are unsustainable.

"This modest medicine does not make for a happy diagnosis. But it makes for a realistic one."


In the circumstances vividly described in the report it seems ridiculous that the price of gold has been falling during 2023 and the report offers yet more reason to question whether the use of gold swaps by the BIS, probably on behalf of the Fed, is being done as part of an effort to suppress the dollar gold price.

Table A below highlights the level of gold swaps reported in the annual reports of the BIS back to 2010, when the bank's use of gold swaps appears to have begun. At only one year-end since then, in March 2016, has the swap level been zero.

The BIS' recently published annual report dated March 31, 2023, discloses that the BIS still holds 102 tonnes of its own gold and that few of its activities in derivatives involve central banks. An assumption that the gold held by the BIS remains at 102 tonnes has been used by this analyst to make the estimate of the bank's gold swap level. The low level of derivatives reported by the BIS using central banks as counterparties at the year-end seems a sensible reason to assume that the swaps are almost certainly done with gold bullion banks rather than central banks. Historically, the first swaps described below were done with bullion banks.

* * *

... Historical context ...

The BIS rarely comments publicly on its gold activities, but its first use of gold swaps was considered important enough to cause the bank to give some background information to the Financial Times for an article published July 29, 2010, coinciding with publication of the bank's 2009-10 annual report.

The general manager of the BIS at the time, Jaime Caruana, said the gold swaps were "regular commercial activities" for the bank, and he confirmed that they were carried out with commercial banks and so did not involve central banks. It also seems highly likely that the BIS' remaining swaps are still all made with commercial banks, because the BIS annual report has never disclosed a gold swap between the BIS and a major central bank.

The swap transactions potentially created a mismatch at the BIS, which may have ended up being long unallocated gold (the gold held in BIS sight accounts at major central banks) and short allocated gold (the gold required to be returned to swap counterparties). This possible mismatch has not been reported by the BIS.

The gold banking activities of the BIS have been a regular part of the services it offers to central banks since the bank's establishment 90 years ago. The first annual report of the BIS explains these activities in some detail:

A June 2008 presentation made by the BIS to potential central bank members at its headquarters in Basel, Switzerland, noted that the bank's services to its members include secret interventions in the gold and foreign exchange markets:

The use of gold swaps to take gold held by commercial banks and then deposit it in gold sight accounts held in the name of the BIS at major central banks doesn’t appear ever to have been as large a part of the BIS’ gold banking business as it has been in recent years, although the recent declines suggest this is changing.

As of March 31, 2010, excluding gold owned by the BIS, there were 1,706 tonnes held in the name of the BIS in gold sight accounts at major central banks, of which 346 tonnes or 20% were sourced from gold swaps from commercial banks.

If the BIS was adopting the level of disclosure made by publicly held companies, such as commercial banks, some explanation of these changes probably would have been required by the accounting regulators. This irony may not be lost on those dealing with regulatory activities at the BIS. Presumably the shrinkage of the BIS' gold banking business shows that even central banks now prefer to hold their own gold or hold it in earmarked form -- that is, as allocated gold.

A review of Table B below highlights recent BIS activity with gold swaps, and despite the recent declines, the recent positions estimated from the BIS monthly statements have regularly been large, especially in early 2022, and the volume of trading has been significant.

No explanation for this continuing use of swaps has been published by the BIS. Indeed, no comment on the bank's use of gold swaps has been offered since 2010.

This gold is supplied by bullion banks via the swaps to the BIS. The gold is then deposited in BIS gold sight accounts (unallocated gold accounts) at major central banks such as the Federal Reserve.

The reasons for this activity have never been fully explained by the BIS and various conjectures have been made as to why the BIS has facilitated it. One conjecture is that the swaps are a mechanism for the return of gold secretly supplied by central banks to cover shortfalls in the gold markets. The use of the BIS to facilitate this trade suggests of a desire to conceal the rationale for the transactions.

As can be seen in Table A below, the BIS has used gold swaps extensively since its financial year 2009-10. No use of swaps is reported in the bank's annual reports for at least 10 years prior to the year ended March 2010.

The February 2021 estimate of the bank's gold swaps (552 tonnes) was higher than any level of swaps reported by the BIS at its March year-end since March 2010. The swaps reported at March 2021 were at the highest year-end level reported, as is clear from Table A.


Table A -- Swaps reported in BIS annual reports

March 2010: 346 tonnes.
March 2011: 409 tonnes.
March 2012: 355 tonnes.
March 2013: 404 tonnes.
March 2014: 236 tonnes.
March 2015: 47 tonnes.
March 2016: 0 tonnes.
March 2017: 438 tonnes.
March 2018: 361 tonnes.
March 2019: 175 tonnes
March 2020: 326 tonnes
March 2021: 490 tonnes
March 2022: 358 tonnes
March 2023: 77 tonnes


The table below reports the estimated swap levels since August 2018. It can be seen that the BIS is actively involved in trading gold swaps and other gold derivatives with changes from month to month reported in excess of 100 tonnes in this period.


Table B - Swaps estimated by GATA from BIS monthly statements of account

Month ….. Swaps
& year … in tonnes

Sep-23.... /96
Aug-23 .... /129
Jul-23 .... /103
Jun-23 .... /87
May-23 .... /188
Apr-23 .... /135
Mar-23 .... /77*
Feb-23 ... /136
Jan-23 ... /103
Dec-22 ... /0
Nov-22 ... /105
Oct-22 ..... /7
Sep-22 ...../57
Aug -22 ..... /75
Jul-22 ..... /56
Jun-22 ..... /202
May-22 ..... /270
Apr-22 ..... /315
Mar-22 .... /358
Feb-22 .... /472
Jan-22 ..... /501
Dec-21.... /414
Nov-21.... /451
Oct-21.... /414
Sep-21 .... /438
Aug-21 .... /464
Jul-21 .... /502
Jun-21 ..../471
May-21 ..../517
Apr-21 .... /472
Mar-21.... /490±
Feb-21 ...../552
Jan-21 .... /523
Dec-20 .... /545
Nov-20 .... /520
Oct-20 .... /519
Sep-20...../ 520
Aug-20...../ 484
Jul-20 ..... / 474
Jun-20 .... / 391
May-20 .... / 412
Apr-20 .... / 328
Mar-20 .... / 326**
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 78 tonnes, but the BIS annual report states 77 tonnes. It is believed that slightly different gold prices account for the difference.

± The estimate originally reported by GATA was 487 tonnes, but the BIS annual report states 490 tonnes, It is believed that slightly different gold prices account for the difference.

** The estimate originally reported by GATA was 332 tonnes, but the BIS annual report states 326 tonnes. It is believed that slightly different gold prices account for the difference.

GATA uses gold prices quoted by to estimate the level of gold swaps held by the BIS at month-ends.


As noted already, the BIS in recent times has refused to explain its activities in the gold market, nor for whom the bank is acting:

Despite this reticence the BIS has almost certainly acted on behalf of central banks in taking out these swaps, as they are the BIS’ owners and control its Board of Directors. Historically, the BIS has often acted on behalf of the Federal Reserve.

This refusal to explain prompts some observers to believe that the BIS acts as an agent for central banks intervening surreptitiously in the gold and currency markets, providing those central banks with access to gold as well as protection from exposure of their interventions.

As mentioned above, it is possible that the swaps provide a mechanism for bullion banks to return gold originally lent to them by central banks to cover bullion bank shortfalls of gold. Some commentators have suggested that a portion of the gold held by exchange-traded funds and managed by bullion banks is sourced directly from central banks.


Appendix A

Remarks on the underlying Federal government deficit for the year ended September 30, 2023

The reported federal government deficits for the last two fiscal years are not fully representative of the underlying trends.

The deficit in the year to September 30, 2022,  is reported as $1,375 billion and the deficit for the year to September 30, 2023 is reported to be $1,695 billion. However, in 2022 a charge of $430 billion was taken to write off some of the student debt owed to the government. Part of this write off was barred by the Supreme Court in June 2023 and consequently the decision was taken in August 2023 to write back an amount of $319 billion to accommodate the court decision. Hence the underlying trend figures for the deficits in the 2 years should be a deficit of $1,056 billion “(1,375 - 319)” in the year to 30/9/2022 and $2,014 billion “(1,695 + 319)”in the year to 30/9/2023. This is an increase of 91%.

The $319 billion adjustment to student loan debt is reported in the August 2023 monthly Treasury statement. Quite surprisingly it is not highlighted in the September monthly statement.

No doubt there are all sorts of other reasons, such as the war in Ukraine, that will affect the comparison, but it is really quite surprising that there hasn't been more commentary about the one-off impact of the adjustment to student loan relief.

The interest costs of the federal government also appear to require some adjustment to be able to deduce the underlying trend. This is because the results reported for interest costs are done differently for the interest costs relating to the debt held by the public and for the interest costs for the "special issues" debt, which is debt held by various long-term government-sponsored funds, such as for military pensions. The interest cost for the debt held by the public is done in what most financial professionals regard as the correct way, which is to calculate the interest cost for the year regardless of when the interest payments are made -- this is what accountants call the "accruals basis." The interest costs reported for this aspect of the government debt is $489 billion in the year to September 30, 2022, and $666 billion for the year to September 30,  2023,  which is an increase of 36%. However, the interest cost on the "special debt," which is based on when the interest is paid, has fallen to $213 billion in fiscal 2023 from $228 billion in fiscal 2022.

It is difficult to correct this to an accruals basis without the relevant information, but with "special debt" increasing by about 2% in the year it seems implausible that the underlying interest charge has declined. It also seems unlikely that interest payments will be made in advance of interest being charged on an accruals basis, and given the recent problems of keeping within the debt ceiling, it seems plausible to regard the $213 billion reported in fiscal 2023 as more likely to have been suppressed than the $238 billion reported in fiscal 2022 to have been accelerated. So perhaps the underlying interest charge on the "special debt" in fiscal 2023 is maybe $50 billion higher than the reported cash basis reported cost of $213 billion.

All the relevant reported figures above come from the September 2023 Monthly Treasury Statement.

Hence it seems plausible that the underlying deficit in fiscal 2023 was around $2.1 trillion, adjusting for the student loan relief and estimating the accruals basis interest charge for the entire federal government debt. This also implies that the underlying interest costs of the federal government were running at about $0.95 trillion annually in the year to September 30, 2023. Given the increases in base interest rates made since June 2022, the increases expected in total debt issued (especially bearing in mind the much higher underlying deficit in fiscal 2023), and the need regularly to refinance parts of the existing debt with borrowings that will attract a higher interest charge, it seems entirely reasonable to forecast that the total debt interest charge will rise considerably in fiscal 2024, perhaps even to $1.4-$1.5 trillion.


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

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