Central banks increased the amount of gold they lent for the first time in a decade in 2011, as they used their bullion reserves to help commercial banks raise US dollars.Although central banks hold one-sixth of all the gold ever mined in their reserves, their activities in the bullion market are opaque, with not a single institution revealing its day-to-day operations. In addition to holding gold for their reserves, some central banks also trade the metal, lending it on the open market in order to obtain a yield.Thomson Reuters GFMS, the precious metal consultancy that publishes benchmark statistics on the gold market, on Tuesday said that the quantity of gold lent by central banks had risen last year for the first time since 2000.The estimate by GFMS confirms a trend that bankers and gold traders have been privately discussing for the past six months. The increase in lending came as eurozone commercial banks, suffering a shortage of dollar liquidity, rushed to borrow gold from central banks and later swap it on the market in exchange for dollars.“There is growing evidence that short-term loans from some central banks to commercial banks could well have increased considerably [in 2011], with the latter then using gold to swap for US dollars,” GFMS said.As the squeeze in the dollar funding markets intensified, short-term interest rates for lending gold fell to record lows in late 2011. The rate for lending gold for one month fell to -0.57 per cent in early December, implying that a bank would have to pay to swap it for dollars.
Read more: Central banks increase gold lending - FT.com