BIS swap transactions show creative use of gold - GFMS

GFMS Chairman PhilipKlapwijk says the operations validate gold's centrality to the financial system

LONDON (Reuters) - 

The 346 tonnes of gold swap operations conducted by the Bank of International Settlements (BIS) in recent months highlight gold's central role in the financial system and are unlikely to lead to dumping of the metal on the market, GFMS chairman Philip Klapwijk said.

The operations, detailed in the bank's latest annual report, show the bank was holding 346 tonnes of gold as part of swap operations in exchange for currencies.

"Here we have gold being used quite creatively," Klapwijk told Reuters Insider television. "That is in a sense a validation again of gold's centrality to the financial system."

The BIS told Reuters these were "pure swap operations with commercial banks". The bank declined to give details on which or how many banks were involved.

While analysts have speculated that one or more European central banks may have been involved in the swap, Klapwijk said he suspected cash-strapped commercial banks have mobilised gold held on deposit to raise liquidity.

"My hunch is that this gold has probably come from commercial banks, and it may be tied up with difficulties that European commercial banks have had in obtaining U.S. dollar short-term financing," he said.

While the size of the swap had heightened speculation of central bank involvement, Klapwijik said this was unlikely, in part because the sum involved was not much for a sovereign -- meaning a country.

"Commercial banks have of late had a lot of gold put on deposit with them, particularly from investment funds, from private individuals," he said. "Some of those balances could be accessible to the commercial banks concerned."

"The other thing to bear in mind is that for a sovereign, the amount of money involved, $14 billion approximately, isn't that great," he added. "It doesn't plug that many holes, given the scale of the (financial) crisis in Europe."

"I think what one might continue to see is use of gold in transactions, either as a leg in a swap transaction perhaps, as use as collateral," he said.

"What this does say... is that gold is being actively used and is very much a part of the financial system."

He said the idea that the gold would enter the financial market, possibly undermining the metal's strength, was "most unlikely." (Additional reporting by Adrian Murdoch; Editing by Anthony Barker)

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