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Dear Friend of GATA and Gold:
In further correspondence with our British friend James Bern, a Bank
of England official this week indicated that the bank, as custodian of the
United Kingdom's gold reserve, has not engaged in gold lending or swapping
from 2007 through the middle of this year.
The letter, sent by e-mail by Ben Norman, deputy secretary for the
bank's Public Communications and Information Division, also objects to GATA's
characterization of the October 24 statement to Bern by another Bank of
England publicist, Jackie Keating, which, GATA reported, confirmed that the
bank is surreptitiously active in the gold market.
In the October statement Keating wrote that information about the Bank
of England's gold swaps and leases, undertaken through the British
government's Exchange Equalization Account (EEA), is "market
sensitive" and its disclosure "would allow enquirers to find out
what gold transactions have been taking place," thereby impairing the
interests of both the British government and the bank's "private
customers," to whom the bank "owes a duty of confidentiality."
(See http://www.gata.org/node/10635.)
In his letter to Bern
this week, Norman called GATA's characterization of Keating's statement
"completely unreasonable."
Yet Norman also echoed Keating's rationale for keeping the Bank of
England's gold transactions secret, at least until the British government's
Treasury should choose to disclose them. Norman wrote: "There is also a
strong interest that certain financial markets participants would have in knowing
about EEA gold transactions (whether sales, purchases, loans, swaps). If the
bank were to reveal how much gold had been swapped or was on loan prior to
the scheduled release of information, this would set a precedent to allow
financial market participants to establish what (if any) gold transactions
had been taking place -- potentially on a daily basis. Such disclosures could
also, in my view, provide an unintended signal to the markets, and, in turn,
be misinterpreted with ensuing potential harm to the government's financial
interests."
While, as Norman indicates, the Bank of England may not have
undertaken gold loans or swaps from 2007 through the middle of this year, the
bank's new statement seems to acknowledge that, since the bank does not want
to disclose contemporaneously any position the bank may have in the
gold market, the bank still may be, like other central banks, intervening in
the gold market surreptitiously at any particular time, including the
present. Of course this long has been GATA's complaint, and of course most
central bank business throughout the world, which includes a lot of market
intervention, continues to be conducted in secret, precisely for the
objectives of market manipulation.
Further, the Bank of England is disingenuous in its expression of
concern about the market frontrunning of its gold
transactions that might result from transparency. After all, while the bank's
gold transactions are to be kept secret from the public and the market
generally, they are no secret from the bank's own gold clients. The
bank's own gold clients certainly know when, say, they have obtained a big
gold loan from the bank and when they themselves might bomb the market with
it, and with this insider knowledge they certainly can figure out how to
position themselves in the market for maximum profit at the expense of market
participants lacking this inside information.
In his letter to Bern, Norman notes helpfully that the most recent
annual report for the Exchange Equalization Account, covering the 2010-11
financial year, shows that the account neither swapped nor loaned gold in
that time, and that two years ago the chief of the Bank of England's Foreign
Exchange Division, Michael Cross, remarked in a speech to the London Bullion
Market Association that "gold lending as part of the government gold
reserve management was suspended in 2007." So, Norman concludes,
"It would be reasonable for you to infer from this that there are no EEA
loans currently outstanding, although you would need to wait for EEA statistics
to be published for this to be confirmed."
All this leaves open the questions of whether the bank or British
government are able to draw upon the gold deposits made at the bank by the
bank's own customers and whether the gold attributed to the Exchange
Equalization Account is the only gold available to the British government for
market intervention. But the lack of contemporaneous transparency in the Bank
of England's gold dealings may be a big enough question.
At least the Bank of England must be credited for responding at such
length and so cordially to ordinary public inquiries. That would never happen
with the U.S. Federal Reserve.
Norman's letter to Bern has been posted here:
http://www.gata.org/files/BankOfEnglandLetter-12-13-2011.png
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