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Central Bank Gold Withdrawals From BIS Most in at Least 8 Years

Central banks withdrew about 632 metric tons of gold from deposits at the Bank for International Settlements in the year ended March 31, the most in at least eight years.

Gold deposits at the BIS fell to about 729 tons, from 1,360.7 tons the previous year, according to its annual report. That’s the most since the year ended March 2004, when the bank began stating gold deposits in millions of special drawing rights. This year’s withdrawal compares with a deposit increase of about 194.1 tons in the year ended March 2010, according to BIS reports.

“Potential explanations include a resumption of central bank lending to the private sector as the balance sheets of commercial banks have improved and the fact that current low lease rates are giving little incentive for central banks to deposit their gold with the BIS,” said Edel Tully, a London-based analyst at UBS AG.

Gold deposits placed with the Basel, Switzerland-based bank originate entirely from central banks, it said in the report. It acts as a bank for central banks. Gold for immediate delivery traded at $1,546.78 an ounce by 4:43 p.m. in London, 2 percent below a record reached in May.

The cost of borrowing gold in London slipped about 87 percent since October 2008. The 12-month lease rate fell to 0.32 percent today, from 0.42 percent a year ago, according to data compiled by Bloomberg. The rate, which was at 0.88 percent two years ago, is derived by subtracting the gold forward offered rate from the London Interbank Offered Rate.

Some of the decline in deposits may have been a shift into off-balance sheet deposits, or if central banks pledged the metal as collateral to other central banks, Tully said.

The Financial Times reported last week that central banks withdrew the most gold from deposits at the BIS in at least a decade. The BIS wasn’t able to confirm when deposit withdrawals were last this big.

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