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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold and Silver Lease Rates Jump at Year End

Commodities / Gold and Silver 2010 Dec 29, 2010 - 02:00 AM GMT

By: Dr_Jeff_Lewis

Commodities

Through the usually flat week between Christmas and New Year's celebrations, at least one (or perhaps a handful) investor is looking to borrow some gold and silver this year.  Overnight, lease rates exploded by more than 500% on both gold and silver.


One year silver and gold lease rates were the most volatile, with lease rates rising from roughly .125% per year to .75% per year.  2-6 month lease rates for silver rose from negative territory (indicative of zero lease interest) to a range of .25% to .5%.  The 1-month contract was unchanged. 

Lease rates for gold all moved into positive territory, with the 1-month, 2-month, and 3-month contract each rising to .25%.  The 6-month gold lease rate rests just below .5%, while a 12-month contract rose to .75% from .125%.

Silver and gold lease rates are the current prices banks pay to borrow gold and silver from central banks and other bankers.  By leasing gold and silver, banks can use the metals to cover short positions, sell on the market, or use to hedge against backwardization, a market phenomenon where the price of a commodity is more expensive in the future than in the present. 

Interpreting the Transactions

The fact that both gold and silver lease rates turned positive indicates that there is at least some interest among banks to borrow reserves at this price.  Positive rates always mean a transaction is complete, whereas negative rates reflect a lack of interest.

Of course, borrowing silver and gold at less than 1% annually isn't in and of itself a very big event.  It does, however, show that at least one bank is expecting gold and silver to trudge higher in the mid-to-near term, and it is picking up leases in a length in the range of two to 12 months.

Lease transactions usually come before or after major news events.  The last time gold and silver lease rates moved to such a degree, the second round of quantitative easing was announced.  Prior, the next big move was in August, when rumors of additional central bank action began to materialize.  In April, gold and silver lease rates soared just one week before the European Union agreed to a 110 billion Euro bailout for Greece.

The above events aren't something most can shake off, and they were all major headlines that stuck to the news cycle for days on end.  If you wanted to hide a newsworthy economic event, especially a serious economic event, when would the best time to make it public?  The days following the largest shopping season might be a good time to release bad economic news, while the days between two of the most popular holidays would be a great place to make sure no one sees it, wouldn't you think?  It just so happens that those two periods are right now.

Something is Awry

There is no such thing as an accident on Wall Street – or an accident in government.  Something major is happening somewhere, but unfortunately outside the charts for gold and silver lease rates, there's little we are allowed to know.  If this event proves to be just like any other, we should know in the next week.  The timing for this event, much unlike those before it, is suspect.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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