Negative lease rates for gold (and silver)

On Monday, May 14, something happened that hasn’t happened since Dec of 2008. Two successive near-month precious metals futures contracts were in backwardation at the same time. ...

... Both May and July silver are backwardated. And June gold is backwardated. Incredibly, the May silver contract is giving away a 3% annualized profit to anyone who would sell physical silver and buy a May future that delivers in a few weeks (thus recovering the same position). Even more incredibly, no one can or will take the profit that is dangling out there!

July silver backwardation is smaller, and June gold backwardation is even smaller. But still! This should not be possible at all.

Because the next successive contracts are not in backwardation (in silver, all contracts from Jul 2015 on are backwardated), it is not a collapse of trust. I think that it is a lack of unencumbered metal. The markets for precious metals, silver more than gold, have become quite tight.

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ancona said:

It might be different numbers, but they are all still negative. Someone's scared!

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Experienced precious metals investors are familiar with the topic of “negative lease rates” for gold and silver bullion. However, even novice investors can infer what is being discussed: paying someone to “borrow” gold/silver bullion.

In general, any time we contemplate a situation where lenders are paying borrowers to borrow, the word “dump” immediately comes to mind. This is because we begin the scenario with a lender choosing to enter into a transaction with the deliberate outcome of losing money. Because the world of commerce is entirely devoted to earning profits rather than creating losses, this automatically also implies market-manipulation – and thus fraud.
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They (the LBMA) are making it more and more opaque. Less and less information is being made available. Specifically, what’s happened here is that the LBMA had been reporting the silver lending rate and comparing it to the LIBOR rate.

For the past couple of years I have contended that this was a fictitious rate because, in reality, I believe silver is in backwardation. In other words, the future months are below the spot months, and so you should have a negative silver forward rate. But it’s not reported that way on the LBMA site.

They (the LBMA) consistently show a positive silver forward rate. Now, what the LBMA said is they are no longer going to report silver interest rates and silver forward rates.....

The reason they (the LBMA) gave is they said it is just an indication and you can’t really trade at that price anyway.

So what that does is prove the point that I’ve been making, that these are artificial rates which are just there to paint the tape and to mislead people into thinking the silver market is actually in a normal contango. But in reality it (silver) is actually in backwardation.
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swissaustrian said:

To translate this starters:
NLL thinks backwardation is back in silver. Last time we had this (in February 2011), silver went from 28 to 48 in 4 months.

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Cessation of SIFO 11:00 Means with effect from 5th November 2012
Following consultation with the LBMA forward Market Makers, and more generally with other market participants, the LBMA Management Committee has agreed that after 2nd November 2012, the forward Market Makers will cease making contributions of their mid-price silver forward rates to allow the calculation of the SIFO means on the Reuters system each day. The reason for the withdrawal of the dataset was that unlike GOFO these rates were indicative rates only and therefore not dealable rates between forward Market Makers. In addition, since January 2011, the LBMA forward Market Makers have jointly contributed essentially the same data :doodoo: :doodoo: (but covering an extended range of maturities – from spot to 3 years) to the LBMA’s daily forward curve for silver. This forward curve can be obtained from a variety of data vendors (Thomson Reuters, Bloomberg and others). If you are interested in receiving this dataset please refer to the Silver Forward curve page on the LBMA website for further details.

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Market talk of strong demand for spot Gold around the current session lows - unconfirmed; trades USD 1613.33 (-1.32%)

'Market talk’ – Signifies information that has not been formally tested through traditional journalistic channels and therefore is to be treated as unsubstantiated. Any interpretation of the talk is taken at the readers own risk and is a representation of the rumours within the market place and never generated by ourselves.

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