And it was not Portugal banks which had pawned its gold to tide over the economic crisis. A few weeks ago when Portugal and Greece were facing severe financial crisis, a mysterious gold swap by undisclosed central banks with Bank for International Settlements had sparked rumours that Portugal and Greece banks were on the verge of collapse and they had pawned their gold.

This week, the truth has come out through a report in Financial Times. The FT report said three big banks - HSBC, Société Générale and BNP Paribas - were among more than 10 based in Europe that swapped gold with the Bank for International Settlements in a series of unusual deals.

The mystery of who was involved in deals with the BIS, the bank for central banks, and what they were doing, has become clearer now. The swaps, which were initiated by the BIS, came as the so-called central banks' bank sought to obtain a return on its huge US dollar-denominated holdings. The BIS asked the commercial banks to pledge a gold swap as guarantee for the dollar deposits they were taking from the Basel-based institution.

When news of the swaps, which were disclosed in a note to the BIS's latest annual report, circulated among traders this month, it caused a sharp fall in the gold price, sending bullion to what was then six-week lows. Gold has since fallen further: it was trading at $1,164 an ounce last week.

The FT report said some analysts speculated that the swap deals were a surreptitious bail-out of the European banking system ahead of last week's publication of stress tests. But bankers and officials have described the transactions as mutually beneficial.

In a short note in its annual report, published at the end of June, the BIS said it had taken 346 tonnes of gold in exchange for foreign currency in swap operations in the financial year to March 31.

In the same fiscal year, the BIS took three times the amount of currency deposits it had taken the previous year as central banks around the world became concerned about using commercial banks for their deposits and turned to the Basel institution.

In a gold swap, one counterparty, in this case a bank, sells its gold to the other, in this case the BIS, with an agreement to buy it back at a later date.

The gold swaps were, in effect, a form of collateral against the US-dollar deposits placed by the BIS with commercial banks. Gold is widely regarded as one of the safest assets, but has not been widely used as collateral in the past.

Investors have bought physical gold in record amounts during the past two years and deposited it in commercial banks. European financial institutions are awash with bullion and some are trying to pledge gold as a guarantee.

Last year, CME Group, the world's largest derivatives exchange, allowed investors to use gold futures as collateral for some operations. Other institutions, such as central banks, had begun using and requesting gold as collateral in the past two years as perceptions of counterparty risk have risen, bankers and officials said.

The gold used in the swaps came mainly from investors' deposit accounts at the European commercial banks. Some investors prefer to deposit their gold in so-called allocated accounts, which restrict the custodian banks' ability to use the gold in their market operations by assigning them specific bullion bars. But other investors prefer cheaper unallocated accounts, which give banks access to their bullion for their day-to-day operations.

Officials said other commercial banks obtained the gold from the lending market, borrowing bullion from emerging countries' central banks.

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