Negative lease rates for gold (and silver)

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pmbug

pmbug

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... There was a report last Friday from a European media source that the Bank of England and the ECB were selling gold. They retracted that report yesterday but it turns out that is it half-true. It turns out that these two Central Banks were likely "leasing" gold out to member banks in order to enable these banks to raise much-need liquidity without having dump crap assets that have little or no bid. How do we know that the CB's were leasing gold? Take a look at the lease rates for gold, which can be found here: www.kitco.com You'll see that there are two distance downward spikes into negative territory. This indicates that Central Banks are making a large supply of gold available for lease to member banks. Imagine that, borrowing gold AND getting paid a small rate of interest to borrow that gold so you can sell it into the market place and use that money to pay your bills...
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http://truthingold.blogspot.com/2011/12/upon-further-review.html

Today the lease rate for one month lease on gold went to negative 1/2%. In other words, the central bank pays the bullion bank to borrow gold. With cheap gold and silver (also negative lease rate) the bankers raided gold and silver. Most financial commentaries believe this action was to make the world seem to be in better shape if gold/silver was down as Europe is in a mess. I do not believe that this was the reason for today's raid. The real reason was the fact that Europe again after just two weeks of huge dollar swaps, have run out of dollars again. Collateral at the European banks are few and it seems the only "good" asset that they have is the gold that they have not already leased out. All other European gold that have been leased out has not been returned and thus remains as a short to the banks. The subsequent sale of the leased gold/silver raises the needed USA dollars.
...
Click to expand...

More: http://harveyorgan.blogspot.com/2011/12/negative-lease-rates-continuegold-and.html

Do I get a cookie now?

:popcorn:
 
Interesting bit of tin foil hat speculation:
...
Having supplied several powerful reasons as to why the bullion banks love to “lease” their gold (i.e. sell it to multiple buyers) begs the question: why aren’t the bankers always “leasing” vast amounts of gold to suppress the price? Hopefully that answer is obvious to regular readers. If you want to loan ton after ton of gold onto the market, you must have some original bullion to lend into the market in the first place.

Here is where we come upon a seeming paradox with respect to the recent explosion of gold leasing. We know that the banksters have virtually run out of their own bullion, as the evidence is absolutely conclusive. The same Western central banks which were openly selling 500 tons of gold per year onto the market every year have now all totally ceased their gold sales. They have no more gold…or at least they had no more gold.

Yet here we have the same bankers directly implying that suddenly they have lots of gold. It makes no sense to announce “the greatest sale on gold in history” – only to run out of inventory after the few first customers have bought their fill. Clearly the bankers have some new gold. This begs an even more obvious question: where did they get it?
...
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More: http://www.bullionbullscanada.com/i...-new-gold&catid=48:gold-commentary&Itemid=131

Jeff Nielson speculates the gold was stolen from Greece and Libya.
 
Ok, one thing is clear: somebody is willing to pay someone else for lending his gold.
It´s either central banks or it´s the general public.
The central bank story is beeing analyzed here in detail:
http://www.metalaugmentor.com/analysis/charlatan-exposed-negative-gold-lease-rates.html
The general public scheme could be this: The LBMA offers unsegregated gold accounts where customers can buy gold on quite a big bid/ask spread. The bullion banks can do whatever they want with the gold in these accounts. Here is what they could do:
We all know they make money on the spread. But they can also lease the gold held in these accounts into the market where it is beeing sold immediately and purchased back through a forward contract. As the spread on the accounts give them gold at a discount to spot, they can use this price difference reduce it somewhat and offer gold at negative lease rates to other market participants.
Gold lease rates calculate like this: Libor MINUS gold forward rate. I.E. if the gold forward rate is higher than the libor, a gold carry trade doesn´t make sense, because your return on the libor investment is lower than the cost of carry. This changes, however, if you´re able to pass your cost onto another counterparty. In this case, the third person is f.cked. It could be unsegregated LBMA gold accounts.
This is described here in detail:
http://www.pollitt.com/upfile/pdf/Oct_2011_Wrap.pdf
 
I would like to borrow gold at negative interest rates. And I bet my credit score is higher then France. Where can I apply for credit?
 
I didn't understand everything in that article - I will need to read it again later when I can do so without distractions, but it looked interesting and thought provoking and touched on several issues that have been highlighted here in the forum.
 
There is a significant correlation between 1 year EUR basis swap rates http://www.bloomberg.com/quote/EUBS1:IND/chart (as an indicator for money market conditions) and gold lease rates. The thesis that this negative lease rates phenomenon is caused by a dollar shortage could be on to something.
Money markets are in post-lehman mode. Translating this to gold would mean that gold forward rates could turn negative soon, meaning gold going into backwardation due to the reverse transaction of the leases which will take all the artificial supply off the market. That would be ultra bullish. All the gold that has been dumped into the market would suddenly dissapear. It would also mean that lease rates would skyrocket, because lease rates = Libor minus GOFO. If GOFO < 0 and Libor > 0 then lease rates > libor > 0. That happened in 2008:
kitco5aulrates.php

GOFO rates are already falling:
http://www.lbma.org.uk/pages/index.cfm?page_id=55&title=gold_forwards&show=2011

So are lease rates:
Gold%20Lease%20Rates.jpg
 
DCFusor said:
What do you guys think of this? I'm not sure I understand the picture well enough to comment, just that it seems pretty relevant, and someone here thinks they know what's going on.

http://www.minyanville.com/business...tes-precious-metals-price/12/15/2011/id/38404
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I think it´s a great article.
In addition to the points already made in this thread, I think the following issues are important:
- The fact that supply and demand don´t seem to influence CRIMEX prices could indicate an imminent disconnect between paper and physical prices.
- This information would soon spread arround the globe and trigger a huge wave a actual physical deliveries out of the CRIMEX warehouses. Due to the fractional reserve structure of the CRIMEX, the exchange could default.
- The weird CRIMEX warehouse data is very suspicious. I have no idea how they´re accounting.
- The only explanation of these illogical warehouse data with regards to all the gold leasing activity would be that these transactions are done over the counter (otc), i.e. not using the CRIMEX and therefore not affecting the warehouse data.
 
Rickards on KWN sees the same things we see:
... One thing that is going on is there is a massive run on the banks globally. It is primarily centered in Europe, but also around the world. There is a huge demand for dollars. There’s a liquidity shortage and people just need dollars.

So let’s just say, hypothetically, I have gold and I like gold for the long-run and think it’s a good investment. I’m a bank let’s say and they (depositors) are withdrawing money and I need dollars. Well, I will sell the gold to get the dollars, even though I like my gold position and I think it’s going higher. I may have to sell it to get cash to meet these other obligations in a liquidity crisis and we are seeing a liquidity crisis.

So the action this week is technically driven, but the fundamentals are still intact. The fundamentals have everything to do with the excess of paper money relative to gold and the potential loss of confidence in paper money that’s coming from over-printing.

The ECB will print when they see some deflation....

The Fed will print if the dollar gets stronger because the Fed needs the dollar to be weaker. With all of this printing coming on stream, you can rest assured the price of gold is going to go a lot higher.”
...
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http://kingworldnews.com/kingworldn...ards_-_The_US_Treasury_Shorts_the_Dollar.html

Same thing we were discussing re: the dollar gaining strength and deflation.
 
Mish relates several news reports on Euro banks indicating severe stress and follows up with:
...
The story of Credit Agricole is symbolic of the banking sector everywhere. Banks are shedding assets, not because they want to, but rather because they have to. The reason they have to is they are over-leveraged or need to raise capital for numerous reasons including new Basel requirements.
...
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http://globaleconomicanalysis.blogspot.com/2011/12/france-in-recession-italy-in-recession.html
 
New article on zerohedge supporting the USD shortage thesis:
http://www.zerohedge.com/news/gold-rebounds-over-1600-some-thoughts-why-liquidation-snapback-here
The movements in the bases confirm that the recent downward move in gold against Dollars was as a result of Dollar funding pressures. Gold was lent on the swap against United States Dollars. This swap must be unwound and where a bid for gold was sought to raise Dollar liquidity, an offer of gold will be sought to unwind the swaps. The co-bases for Feb-12 and Apr-12 gold contracts are starting to advance – an exceptionally bullish signal following the selloff and a sign that physical buying is being prompted by these lower prices. It would be very prudent to accumulate gold against United States Dollars aggressively over the next fortnight."
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Watch this video to understand why we could be up to a massive lease covering rally, including gold futures going into backwardation:
 
Lease rates are now higher than they were before the recent gold correction
au_go_0030_lsb.gif

Silver rates haven´t changed a lot:
ag_go_0030_lsb.gif
 
Gold lease rates are on the rise again today.

For a long term perspective: One can easily see the chaos in the heavily manpulated gold market of the 1990s here. On the surface (spot price) it looked calm all the way. But look at the lease rates:
MS%20Gold%204.jpg
 
6 and 12 month rates for both gold and silver are crashing again.
Short term rates for silver are going UP
 
Interesting. Possible indications of a physical shortage?
 
PMBug said:
Interesting. Possible indications of a physical shortage?
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The short term silver rates - yes, possibly.
The negative long term rates probably indicate that money markets are once again in trouble. Somebody is paying someone else for leasing his gold in exchange for short term dollar liquidity again.

EDIT: moneymarkets in Europe are indeed in trouble. See here the 1 year EUR basis swap:
chart
 
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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.

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% in early December, implying that a bank would have to pay to swap it for dollars.
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http://www.ft.com/cms/s/0/c2b92910-40fe-11e1-b521-00144feab49a.html
 
So much for the "conspiracy theory" that central banks are deliberately suppressing gold.
Great find, pmbug :mrt:
 
By the way, this means that we will see either some kind of lease covering by commercial banks (they have sold the least gold into the market) or the indefinite extension of the lease agreements (i.e. central banks effectively "selling" their gold).
:popcorn:
 
Seems like somebody has been leasing some gold into the market yesterday ahead of the FOMC announcement and friday's options expiry. Be careful!
 
1625 is where I think we should expect it to hit. They are definitely trying to take out some stops.
 
Check out the lease rates charts today:

210yslh.gif


2i6mkw6.gif


Short term is all negative.
 
Johnny Bankster doesn't want JQ Public to ever find out the true price of gold. They will lease it until it's all gone.
 
Silver lease rates don't look well. I think it's up for a correction:
ag_go_0030_lsb.gif


Gold looks much better.
au_go_0030_lsb.gif
 
Lease rates aren't plunging today (in fact, they're rising a tiny bit) which indicates that the current selloff is probably:
a) short lived
b) not driven by increasing physical supply due to leasing.
 
Interesting developments in silver lease rates: they're indicating the the long end of the futures curve (i.e. also the longer dated forward prices) is moving towards deeper backwardation:
14lnd5.gif


This move is only happening in silver. gold rates are staying basicly flat.
 
swissaustrian said:
Interesting developments in silver lease rates: they're indicating the the long end of the futures curve (i.e. also the longer dated forward prices) is moving towards deeper backwardation:
14lnd5.gif


This move is only happening in silver. gold rates are staying basicly flat.
Click to expand...

Care to elaborate?
 
dereksatkinson said:
Care to elaborate?
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Backwardation means that the future price of a commodity is below the spot price. You basicly pay a premium for instant delivery. This indicates a phyiscal shortage and is very bullish.
As of yesterday, the silver futures curve looks like this:
chart.aspx
 
swissaustrian said:
Backwardation means that the future price of a commodity is below the spot price. You basicly pay a premium for instant delivery. This indicates a phyiscal shortage and is very bullish.
As of yesterday, the silver futures curve looks like this:
chart.aspx
Click to expand...

I understand what backwardation is.. I had a post about it in January.

I was wanting you to elaborate on "moving towards deeper backwardation:" part. Contextually, where are we vs January?
 
swissaustrian said:
Interesting developments in silver lease rates: they're indicating the the long end of the futures curve (i.e. also the longer dated forward prices) is moving towards deeper backwardation: ...
Click to expand...

I think what Derek is asking (and I'd like to understand as well) is ... how are they indicating it? What are you seeing specifically in the lease rates that suggest the correlation with futures backwardation?
 
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