Today, the FT provided some additional information on the BIS' "goldgate" as relates to its 346 tonnes of gold disclosed as swapped recently by the ubercentral bank. As the FT says, "Investors have bought physical gold in record amounts during the past
two years and deposited it in commercial banks. European financial
institutions are awash with bullion and some are trying to pledge gold
as a guarantee." There was nothing necessarily new in the article, and as expected the swap was merely put in place to collateralize a dollar funding crunch ahead of the European insolvency, allegedly resolved by the guaranteeing of $1 trillion in the world biggest bail out fund by the IMF and the ECB. Nonetheless, at least now we can end speculating as to who benefited: it was not entire countries that had pledged their gold reserves to the ECB (contrary to the rumor that Portugal had given Bernanke a lien on its gold), but merely ten banks, of which HSBC, Société Générale and BNP Paribas were the biggest. While HSBC's presence is somewhat surprising, the latter two banks having found themselves in a massive currency crunch makes sense: as Zero Hedge had previously noted, this is confirmation that it was precisely the French banks that had found themselves on the wrong side of some major euro trades (one need only to recall BNP's call for subparity in the EURUSD from a month ago). Yet what is without doubt is that physical gold will play an increasingly prominent role as a hard collateral asset. In light of this, we present to you the thoughts of Sprott's John Embry on the precious metal, titled "Gold's on the cusp of parabolic move up" whose conclusion fits with the implications of the BIS action: "Central banks can no longer supply the amount needed to balance supply and demand while mine production continues to stagnate at best. It is imperative that investors ignore the volatility created by the anti-gold cartel and use every opportunity that is created by them to purchase more physical gold." Yes John is conflicted, and yes, he has said comparable things in the past... maybe, as more and more piece of the puzzle come into place, this time he will finally be right?
Full Embry essay