Gold Lease Rates

A while ago I speculated that the GOFO rate and LIBOR are closely linked, and that selling large volumes of gold leases into the spot market may serve rather to keep LIBOR at a certain rate for a certain time, rather than to specifically fix the gold price market. It would be difficult to argue in a rising bull market for gold prices that prices are being held down.

So in examining the gold lease rate, which is the Gold Forwards Rate minus LIBOR, the 3-month rate is above zero, while the one-month rate is chronically below zero. In the major sell-off for bullion in September of last year, rates should have risen above zero.

In fact, most lease rates are above zero, with the exception of the 2 and 1 month rates. Its been a curious setting, because interventions that have taken a month to resolve are now taking a week, as we saw last week. This means that gold lease rates are set to rise above the government treasury rate for its respective time frame, if they haven't already.

What that also means is that it will cost you to purchase gold leases instead of the central bank to pay you to lease it out. That means that you have to rely on price declines alone to pay for your gamble, if you're selling leases into the market. This will also require that you massively hedge against losses, and treasuries are not yielding enough to allow you to do this. It has thus become far too expensive to maintain. So we have very short term gold price interventions that will serve as a temporary fix for LIBOR or in the U.S., the discount rate.

http://www.kitco.com/charts/popup/au0030lr.html

via GATA.org - Turd Ferguson Interviewed By Gold Money

Gold Money.com

-F6