URGENT🔴The Bank Of International Settlements Using Swaps to Recover Central Bank Gold?

Is The Bank Of International Settlements Using Swaps to Recover Central Bank Gold?

The Swaps make the BIS long unallocated gold and short allocated gold, which seems a strange position for the supposedly conservatively run central bank…Disclosures in the recent monthly statements of account published by the Bank for International Settlements show that the bank is still actively trading in gold swaps, which the bank uses to gain access to gold held by commercial banks.

There is not enough information in the monthly reports to calculate the exact amount of swaps. But based on December’s statement, which was posted very late, only this week —

— it can be estimated that the bank’s gold swaps exceeded 275 tonnes at the end of the month. This compares to estimates of 308 tonnes in November, 372 tonnes in October, 238 tonnes in September, and 370 tonnes in August.

The BIS began using gold swaps more than nine years ago. They were first disclosed in the bank’s annual report for the year ended March 31, 2010. The BIS reported then that it had acquired 346 tonnes of gold through swaps.

Based on a review of the bank’s annual reports, it seems that the BIS was not involved in gold swaps for at least 10 years prior to 2010. As can be seen from the following table, the BIS has used gold swaps extensively since 2010.

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.

The BIS rarely comments publicly on its banking 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 on 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 all carried out with commercial banks and so did not involve other central banks.

The article includes comments from people said to be familiar with the BIS’ gold transactions:

“Some analysts speculated that the swap deals were a surreptitious bailout of the European banking system ahead of last week’s publication of stress tests. But bankers and officials have described the transactions as ‘mutually beneficial.’

“‘The client approached us with the idea of buying some gold with the option to sell it back,’ said one European banker, referring to the BIS.

“Another banker said: ‘From time to time central banks or the BIS want to optimize the return on their currency holdings.'”

The comments to the FT confirm that the BIS initiated the discussions on making the swaps with its potential counter parties and was the driving force behind the transactions. Since that interview in 2010 the BIS has offered no more public comments on their use of gold swaps.

Indeed, the BIS has refused GATA’s request to explain its activity and objectives in the gold market and to confirm or dispute this analyst’s conclusions about them:

From disclosures in the BIS’ annual and semi-annual reports, it appears highly likely that the bank’s gold swap activity involves only commercial banks acting as their counterparties rather than other central banks. Since the BIS initiated these transactions, it is fair to ask whether the swaps are being used to top up central bank gold holdings.

The swaps make the BIS long unallocated gold and short allocated gold, which seemss a strange position for the supposedly conservatively run central bank of the central banks. This exposure is not highlighted in the voluminous risk-management disclosures made in BIS annual reports.

The nine-year period during which the BIS has been involved with gold swaps has also seen a substantial decline in the volume of gold being deployed in the BIS’ traditional gold banking business. The traditional gold banking business saw the BIS acting as an agent for central banks wishing to deposit gold on an unallocated basis with otdher central banks based in major gold trading centers.

As an example, this business allowed the gold of Germany’s central bank to be deposited safely on its behalf with the Bank of England though Germany and the United Kingdom were at war from 1939 to 1945. As this traditional gold banking business has declined, there have been occasions when swaps have provided more than 50 percent of the gold deposited by the BIS in unallocated gold accounts with major central banks in gold trading centers — an example such as occurred on March 31, 2017.

So the use of gold swaps has become an important source of gold for the BIS’ banking business. Such a major change to the nature of the BIS’ gold banking has not been explained by the BIS, and it seems a rather odd development since the driving force for the traditional gold banking business was presumably demand from central banks wishing to protect their gold by depositing it with the BIS rather than directly with another central bank in a gold trading center.

One could imagine that Venezuela lately might have preferred to deposit its gold at the Bank of England via a transaction with the BIS rather than directly.

The use of gold swaps to source gold to be deposited in BIS unallocated gold accounts at major central banks does not appear to fit with the original rationale for the bank’s gold banking business. But it does fit the possibility of shortages of central bank gold being filled by the BIS through swaps.

Will the BIS ever explain if this assessment is wrong?

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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.

On July 5th last year, I wrote the following:

“Long-term—which starts when the Fed signals it is pausing its interest rate hikes and balance sheet reduction policies and reverting back towards QE and ZIRP, perhaps later this year—Gold is going to new highs, in my humble opinion.”

On July 19th, I wrote:

“On a final note, if we do get new all-time highs in the S&P followed by a stock market crash later this year—something I have predicted since February—and the Fed is forced to reverse policy, then Gold will truly take off from that point, in my humble opinion.”

On September 14th, I wrote an article entitled “When The U.S. Stock Market Crashes, Buy Gold”, in which I provide the detailed rationale for why I expected a stock market crash in the Fall and why everyone should buy Gold at that point.

I have repeatedly stated in the majority of my articles since July that my primary expectation for the bottom in Gold would be a crash in the stock market followed by a Fed policy reversal, which would signal THE LOW in Gold and the beginning of a substantial rally to follow, taking us up to new highs, i.e. above the 2016 high of 1377.

Well, we got the first leg of the crash right on schedule in October, when the S&P fell 20%. Then this week, much to my surprise and almost everyone else’s, the Fed capitulated to the markets and did a complete 180 on policy. Fed Chair Powell stated that although the economy remained strong, the current level of interest rates was appropriate, meaning that they would not be raising rates again any time soon. More importantly, he added that the balance sheet program that was running on auto pilot could now be used in addition to rate cuts in response to deteriorating economic and financial market conditions, and that it would end sooner than previously anticipated. If that were not enough, he finished by saying that the balance sheet could be increased again if necessary to deal with any future crisis, a clear indication of plans to return to “QE”.

It is no surprise that Gold has now rallied $164 off its low of 1167 back in August and hit 1331 yesterday. Given this surprise gift from the Fed, I believe Gold will break 1377 this year, rising to somewhere between 1400 to 1485. There is one caveat, however. The Fed’s reversal was a “verbal” 180. I posted the following tweet on January 7 th:

“This is a Bear market [in stocks] until the Fed ‘actually’ reverses course.”

As Chris Carolan put it on Wednesday:

“Halting QT will not rescue markets. Only QE can save them.”

The Fed basically told us that they would not be raising rates again, that the balance sheet reduction program would end sooner than expected, and the QE was back on the table when the next crisis hit. But they did not cut interest rates yet. They did not stop the balance sheet reduction program. They have not actually reversed to QE. Why is this important? Any Ponzi scheme can only survive with increasing cash inflows or liquidity. Stable is insufficient. Declining liquidity means collapse. The same goes for the stock market.

Lee Adler rightly pointed out the following, post the FOMC announcement this week (parenthetical commentary mine) ( https://suremoneyinvestor.com/2019/01/trump-and-wall-street-threatened-and-powell-became-chamberlain-for-peace-in-our-time/):

In summary, the Fed did a “verbal” 180, but until they actually reverse policy by cutting interest rates and reverting to QE, the risk of a third and final leg down in stocks remains, once this Wave B bear market rally is done. This could mean higher yields at the same time too.

So how does this affect Gold?

Gold has two choices. It can decide that QE is inevitable and therefore just go straight up to 1400+. This is the path it followed in October 2008, despite the fact that QE1 did not begin until March 2009.

Or it could decide to follow stocks down, as it did from March to October 2008 first.

Currently, Gold is extreme overbought (RSI>70), overbullish (DSI 80 matching peak on April 11, 2018 at 1369), after a $164 rally, and negatively divergent across all indicators. It could just continue higher, but the risk/reward favors a pullback, potentially as far as ~1250.

That said, whether we get a pullback or not, I believe we see new highs in Gold to >1400 this year.

From a longer-term perspective, I believe it is important to mention that Mike Maloney predicted that the U.S. would resort to helicopter money to prop up U.S. government finances, the economy and markets when all else failed, and that would mean sending Gold and Silver soaring to the stratosphere in terms of price.

Well, the U.S. establishment likes to use some interesting terms sometimes, such as the Federal Reserve instead of the U.S. central bank and QE instead of debt monetization (been around since at least World War 1). The latest is Modern Monetary Theory, or “MMT”. This is doing the rounds in Washington now, and the politicians like it because it is basically a blank check from the Fed to finance government spending without limitation… other than inflation. This is helicopter money. Mike was right, or will be.

If this nonsensical idea comes to fruition—and it is likely it will— the dollar will collapse, in my opinion, and hard assets, especially Gold and Silver, will explode higher. This is what China and Russia have been preparing for over the last decade by offloading dollars and treasuries and buying Gold. They knew that the U.S. would resort to printing the dollar into oblivion to finance its rising deficits, debt, and unfunded liabilities. MMT is the spark to light Gold’s fuse.

This is why I’ve been following the smart money since I started buying Gold and Silver in the second half of 2015, and as I’ve also said repeatedly (especially since October), if you don’t own any Gold or Silver yet, buy “some”. Whether we get a pullback or not in the short-term, precious metals are going multiples higher, thanks to QE, MMT, and the global monetary reset to follow.

Chris is looking for a pause here in the metals & the miners, but after the pause? Well, just check out these exciting opportunities found in the charts…

by Chris Vermeulen of The Technical Traders

We recently closed our GDXJ trade for a 10.5% total profit with our members.  We are preparing for a lower price rotation over the next 45+ days that will allow us to plan for new long.  Our research indicates the metals/miners should enter a downside price rotation over the next 45+ days as the US stock markets continue to rally.  Give this expectation, it is important to understand how we are timing this move for our members and attempting to take advantage of strategic trade deployment.

With Gold recently breaking above $1300, many analysts have been calling for a continued breakout move to the upside as well as a massive market correction in the US stock market.  We’ve been calling for just the opposite to happen – a pause in the metals/miners near this $1300~1320 level.

If our analysis is correct, a renewed capital shift will continue to unfold over the next 30~45 days where foreign capital will move into the US stock market (including technology, financial, medical/biotech, blue chips, mid-caps, and others) as global investors chase the safety and returns of the US Dollar and the US stock market.  This process of deploying capital into the US stock market will relieve upside pressure in the metals/miners for a brief period of time – resulting in a price pullback.  Our expectations are that the GDXJ price will rotate back below $31 and likely target a support level near $30.50~30.65.  This is near where we intend to look for new Long entry trades.

ADLC – ADVANCED DYNAMIC PRICE CYCLE PROJECTION

ADLC – ADVANCED DYNAMIC LEARNING PREDICTION PROJECTION

WEEKLY LONGER TERM VIEW OF PROJECTION

The opportunity of the next leg higher in the metals/miners is exciting.  Take a look at this Weekly GDXJ chart showing the upside price targets near $42 and $45.  These represent a 37% to 47% upside price objective once this rotation completes as we expect.

In short, if you want to gain access to our proprietary price modeling systems, a dedicated research team, daily video analysis, and help you find and execute better trades, then please visit www.TheTechnicalTraders.com.  If you want to know how and when we are trading these markets to help our members, then consider becoming a member and enjoying all the benefits we offer our subscribers.  This is going to be an incredible year for skilled traders who can move around and trade the hot pockets of stocks and commodities.

Chris Vermeulen

Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He has also been on the cover of AmalgaTrader Magazine, and featured in Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites.

Disclaimer: This material should not be considered investment advice. Technical Traders Ltd. and its staff are not registered investment advisors. Under no circumstances should any content from websites, articles, videos, seminars, books or emails from Technical Traders Ltd. or its affiliates be used or interpreted as a recommendation to buy or sell any security or commodity contract. Our advice is not tailored to the needs of any subscriber so talk with your investment advisor before making trading decisions. Invest at your own risk. I may or may not have positions in any security mentioned at any time and maybe buy sell or hold said security at any time.