Days ago, in the London metals market, there was talk that in June there was speculation about the entry of a shipment of gold into the United Kingdom that would be linked to the Central Bank of the Argentine Republic (BCRA), which later, amidst legal filings and requests for information by opposition legislators, was confirmed by the highest authorities of the economic team led by Luis Caputo.
The international press echoed the issue and, precisely, on July 28, the Spanish newspaper El País reported that part of Argentina’s international gold reserves had been transferred abroad, and after the wave of rumors, complaints and speculation about the whereabouts of the gold, Luis Caputo acknowledged that it had been sent abroad without giving further details, although the president Javier Milei He hinted that it could be used as collateral to obtain a bridge loan, which is essentially called a swap.
Gold used as collateral
Thus, in London they commented that in June, the United Kingdom received a shipment of gold worth US$150 million from Argentina and it is most likely that the gold was sent by the BCRA to be used as collateral in the London Bullion Market.
“Normally, monetary gold (the gold held by a central bank) is exempt from being disclosed in customs data, however, as in the case of the purchase of gold by the Chinese central bank in London, if the banks that operate this business, the “bullion banks”, are responsible for shipping and insurance, the metal does appear in international trade statistics.”explains the expert Jan Nieuwenhuijs.
For this coin and bullion market insider, the UK most likely imported 3 tonnes (worth US$150 million) from the BCRA’s stockpile, because as far as UK customs data is available, the country has never traded any amount of gold of any substance with Argentina before June. He adds that as Argentine officials confessed that some of the monetary gold was sent abroad in June, and For the first time in history, the United Kingdom (home to the world’s largest gold market) imported 3 tons from Argentina that month, it is certain that this batch can be attributed to the BCRA. But he warns that this does not exclude the possibility that gold was also sent to Switzerland.
Gold remains on the books of the BCRA
According to the latest international data, at the end of June the BCRA informed the International Monetary Fund (IMF) that it was holding the same amount of gold as the previous month. Apparently, explains the analyst of Gainesville Coinsthe BCRA has kept the exchanged gold on its books, which is tolerated by the IMF. It should be noted that the weight of a central bank’s gold reserves, according to the IMF, may include “gold deposits and, where applicable, exchanged gold”.
It should also be mentioned in relation to the operations carried out in June alone, that The 3 tons (almost 96,500 troy ounces) of collateral in London represent less than 5% of the BCRA’s total gold reserves of 61.7 tons. On the risks involved Nieuwenhuijs points out that There is always a risk that gold abroad can be blocked.as happened before the pandemic with 30 tons of Venezuela at the Bank of England (BoE), but it assumes that the BCRA’s lawyers carefully weighed all the pros and cons before approving the delivery of the gold to a bullion bank in London.
Although there is no official information available about the purpose of the operation, there was no official information at other times, such as when the Cambiemos government also used just over 7 tons of gold reserves to make swaps and obtain a return. This is not usually made explicit, and only later do international statistics reflect the exit and re-entry of gold linked to the “swap”. In the Argentine case, the last time was in July and August 2023, when 7 tons left and entered, respectively.
How the gold swaps market works
However, when unsecured loans are negotiated, the borrower pays the gold leasing fee required by the lender to compensate for the risk of default and postponement of the use of the metal. But a gold loan can also be secured with dollars (as well as other currencies and assets). In the case of a secured gold loan, which is the definition of a swapenjoy a lower interest rate due to lower credit risk. In other markets, a “swap” is called a “carry trade” or a repo.
A “swap” is referred to as a “loan” because it is a spot exchange of gold for currency, where both parties agree to reverse the transaction at a predetermined date in the future for a fixed price. The contract involves both a spot and forward exchange, which is why it is called a secured or secured loan. According to the conventions of precious metals markets, the word “swap,” unless otherwise specified, refers to a spot metal purchase/forward metal sale transaction from the borrower’s perspective while from the lender’s perspective, it is a spot metal sale/forward metal purchase transaction. For example, If a central bank wants to borrow $2 million for 6 months, but thinks the dollar interest rate is too high, then bullion banks offer a discount if the central bank pledges 1,000 ounces of gold to secure the dollar loan. In the case of a bullion bank, if the central bank cannot repay the dollar loan, it will keep the gold as compensation for its dollar loss. In this type of transaction, the reference swap rate on the OTC market at which bullion banks lend gold in “swap” against dollars is the so-called GOFO (Gold Offered Forward Rate).
Source: Ambito
