Currently some pieces of news seem to be more valuavle than the others, particularly valuable are the news about gold, in a situation where the gold has lost some momentum for some time in recent days.
This time we were served by news under the title: "European banks use gold reserves to raise cash" sourced here.
This time we were served by news under the title: "European banks use gold reserves to raise cash" sourced here.
European commercial banks have begun using their holdings of gold to raise cash with the Bank for International Settlements using swap operations. The BIS took 346 tonnes of gold in exchange for foreign currency in "swap operations" in the financial year to March 31, according to a note in its latest annual report (specific part of the report where this information is mentioned, can be found here). The Bank for International Settlements (BIS) is an international organisation which fosters international monetary and financial cooperation and serves as a bank for central banks.
Co to clear out the meaning of the news information - in a gold swap, one counterparty, in this case a bank, sells its gold to the other, in this case the BIS, with an agreement to buy it back at a later date. In the past the BIS has occasionally engaged in gold swaps. There has been no mention, though, of any such operation in recent years. The gold swaps detailed in the annual report began in December last year and have surged since January, when the Greek debt crisis erupted. The amount raised in the operations, just over $13 billion at current prices, is small compared with the wholesale money markets. But the fact that banks are using their gold holdings to raise capital is a further indication of the stress in the sector.
Banks used gold swaps simply to gain liquidity. The gold was not sold in the strict sense, but contained a sale transaction, and commitment to future repurchase (swap), which is a de facto a gold backed loan. As the authors themselves admit the article is not anything unusual, such an instrument is available and has been used in times of crisis, precisely because gold is real and undeniable value to back loan.
It's just another argument in a discussion whather gold is really a money itself or not. It proves that it was cheaper and more convinient to make a gold swap than for example a Euro swap, beacuse of true value represented by gold, which is of course not present when you back the loan by fiat currency.
