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When Will the Market Obtain Loaned Gold Information?

Absent some nefarious explanation, the reason the market has never been supplied loaned gold information is pretty simple. Central Banks have never been required to report it. It’s not that they don’t have the information. Blanchard is willing to venture that any central bank that manages it’s gold reserves knows on a daily basis down to the ounce where that gold is located, either in storage or out on loan.

By making this simple accounting change recommended by IMF statisticians, the gold market becomes more transparent and gets rid of the rationale behind conspiracy theories on price manipulation. All participants better understand the market and major supply side portions of the market will no longer be subject to estimates on potential price impacts.

The IMF Committee on Balance of Payments Statistics, or BOPCOM, publicizes its decision in late November 2006. BOPCOM will be presented with the IMF papers detailing incorrect accounting procedures for gold reserve swap and loan accounting treatments. At this meeting it will be up to the members of BOPCOM to decide if accounting for gold loans by central banks will be changed or allowed to continue under the current system. This is not the final decision on how to completely change IMF accounting regulations, but it’s a start. This IMF committee decision isn’t an end-all for completing market transparency, but it is an important starting point.

As evidenced in both the issue paper and committee recommendations on gold loans, IMF statisticians believe, without exception, that standards of accounting currently in place should be changed. The IMF has informed Blanchard that, if implemented, the accounting changes would take place “possibly” by year-end 2008. Typically, individual countries take several years to begin complying with IMF reserve reporting changes. Along with the signing of the Washinton Agreement in 1999 and the legalization of gold ownership by Chinese citizens in 2004, this is a potentially watershed event for the gold market that does not appear on many analyst radars at present.

If the IMF does not require this change or central banks and bullion banks fight potential accounting treatment changes, then additional questions should be raised as to why they would delay additional transparency in the gold market.

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