THE RECENTLY SPOTTED 346-tonne Gold Bullion swaps undertaken by unknown commercial banks with the Bank for International Settlement both show how risky the banking sector remains, and are also "bullish for gold" according to the analyst who first noticed the deal.
Hidden in the BIS's latest 170-page update, the gold swaps – under which commercial banks exchanged Gold Bullion for cash loans, with a fixed (but unknown) date for reversing the swap – "reveal the fragility of the banking sector," says Matt Turner of London's VM Group consultancy.
"Central banks [are] perhaps reluctant to be seen assisting commercial banks in the same [direct] way as in [late] 2008 and early 2009," he writes. But this way, central banks – perhaps in the troubled Eurozone – can help raise funds for their domestic banks, but by lending Gold Bullion, rather than cash directly.
"It is also quite bullish for gold considering how governments have mobilized gold to indirectly prop up commercial banks," says Turner, and the Gold Bullion swaps may further "slow the rate of official-sector gold sales" under the current Central Bank Gold Agreement (CBGA) renewed last Sept. by the major Western European holders.
"After all, which central bank will want to be seen ridding itself of this asset?" asks Turner in the VM Group's latest ABN AMRO Metals Monthly.
Across in Asia, meantime, state-administrators for China's huge $2.4 trillion foreign currency reserves recently said there simply wasn't enough gold available for it to replace the US Dollar as "the most important" asset in their holdings.
In the new edition of the China Securities Journal, however, former central-bank advisor Yu Yongding says today that China should cut its Dollar holdings for fear of a "sharp depreciation" in the world's No.1 reserve currency.
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