From The Telegraph:

The news that a mystery bank has just pawned the family jewels gave traders a jolt – nervous about the sudden transfer of almost 20pc of the world’s annual gold production and the possibility of a sell-off.

In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month.

Concerns hinged on whether the BIS could potentially sell on this vast cache of bullion in the event of a default, flooding the market with liquidity. It appears to have raised $14bn for whoever’s been doing the swapping – small fry on the currency markets, but serious liquidity in the gold market.

[…]

Meanwhile, economists and gold market-watchers were determined to hunt down which bank is short of cash – curious about who is using their stash of precious metal for what looks suspiciously like a secret bailout.

At first it looked like the BIS was swapping gold with a troubled central bank. After all, the institution is the central bankers’ bank and its purpose to conduct transactions with national monetary authorities.

Central banks in the troubled southern zone of Europe were considered the most likely perpetrators.

According to the World Gold Council, central banks in Greece, Spain and Portugal held 112.2, 281.6 and 382.5 tons of gold respectively in June – leading analysts to point fingers at Portugal, or a combination of the three.

But Edel Tully, an analyst from UBS, noted that eurozone central banks would be severely limited with what they could do with the influx of extra cash – unable to transfer it straight to governments or make use of the primary bond markets.

She then listed the only other potential monetary authorities with enough gold as the US, China, Switzerland, Japan, Russia, India and Taiwan – and the International Monetary Fund.

This led to musings that the counterparty was the IMF, making sense because the lender of last resort is historically prone to cash shortages and has been quietly selling off gold in the first half of the year.

A lot of people are rushing to put a pretty face on this but no matter who’s selling or buying gold this transaction, whether it be a sell off or a lease as some are now saying, means two things for people trying to get prepared.

1) A very large entity, either a bank with multinational holdings or a country in financial trouble, needs cash to keep operating and can’t raise it the normal way. We all knew this was going to happen, and that it will continue to happen to states and countries. This is the kind of move a desperate state might make to keep afloat one more quarter, but when this doesn’t work what happens?

2) The gold market is not the safe haven people claim it is. Owning gold is indeed a great way to maintain wealth in times of inflation, but the price of gold is just as susceptible to global financial mismanagement by governments and good old fashioned supply and demand pressures as any other market. Don’t put all your hope in gold, just enough money to keep operating once hyper-inflation kicks in.