Gold Futures Index (GOLD)

[Pro-Life]

BACK TO GOLD LEASE RATES

(More of the Jim Willie article... I mentioned this first on the forum... right?)

http://www.kitco.com/ind/willie/oct302008.html

The gold lease rates have jumped significantly. Lease rates have more than tripled in the last month alone! They have not subsided. The last time rates on the one-month lease were in this neighborhood was over a decade ago in another crisis. It means that vault owners who control large quantities of gold are much less willing to permit other parties to borrow it, plain and simple. The COMEX, where paper gold is traded, might not be able to acquire much needed gold from central bank vaults and other bullion bank vaults in order to satisfy delivery requirements. Vault owners must expect higher gold prices to come. Clearly, the gold market is experiencing shortage. The lease market is an excellent forward indicator on physical price movement. Silver lease rates have also tripled, just like gold, and not subsided either. The lease game is thoroughly perverse. One effect rarely noted is that short sellers within the futures contracts might be squeezed due to leasing challenges. If they have a harder time to roll over contracts, by means of higher required posted margin or higher cost of leased gold, then they must cover. A price rally ensues.



Steven Isenberg, chief executive officer of M Partners in Toronto pointed out that the cost of borrowing gold rose dramatically in March 2001, when central banks were making less bullion available to speculators, mining companies, and jewelers. Gold promptly rallied more than 12% in the following two months. He said, “This [the lease rate for gold] usually precedes a sharp move in the gold price.”

Ross Norman, director of TheBullionDesk.com, said the latest lease rate spike “is indicative of perhaps an even tighter market still yet to come.” While gold miners and jewelry groups are the most frequent borrowers, central banks are the traditional lenders. Fat Prophets offers an excellent interpretation on lease rates, given on October 12. “Today’s commentary concerns the last carry trade left in the markets, i.e. gold. Gold peaked at $1032 in March this year. However, since then it has fallen steadily, trading as low as $734. While this fall has been in line with a rising USD dollar, it has also been orchestrated. The current spike in gold lease rates indicates that demand for physical gold is extremely high and growing quickly. We may well be witnessing the first seeds of the gold price breaking free from the short sellers and the end (death) of the gold carry trade, which so many bullion banks made such large profits on in the 1990s. The lease rates (available on TheBullionDesk.com) will be the key indicator to watch.”

The margin requirements at COMEX have been increased. Could this move be intended to hinder gold investors? Yep! Is the move consistent with rising gold lease rates? Yep! Will the devious maneuver halt a gold price response? Nope! Margin collateral demands in a general sense have risen by 500% in many hedge fund accounts. The pressure extends to India, where withholding credit from major buyers has inhibited gold buying. The trend is clear, as pressure by authorities has been to reduce leverage by force. When liquidation is late, price reversal comes swiftly.