Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

*** Lease Rate Spikes Prove (Gold & Silver) Price-Rigging ***

Hey ml, check this out. Really, really interesting.
Sad thing is.....
Even if true and even if there were some litigiously inclined and verifiably injured parties and even if the appropriate statutes of limitation hadn't expired and even if the 'facts' of the matter could be proven w/o a doubt, our legal system would never be allowed to hear a case such as this.

Quite frankly, I'd settle for an accurate accounting of the amount of unencumbered bullion currently being held in the world's central banks. I prolly won't get that either. <gg>

Well, ml, if nothing else..... I'm going to start watching the lease rate movements for a clue . While it has only happened twice since 1999, the spike through the approx 3.65% lease rate has presaged a pretty fair run up in the PoG. It would prolly be more prudent to wait for $4.00% to be breached, but since this is my idea, I feel it my duty to jump the gun a bit..... <VBG>

Lease Rate Spikes Prove (Gold & Silver) Price-Rigging

Alex Wallenwein

Although the "leasing" of precious metals by central banks is in itself a highly suspect practice that reeks of manipulation, it is the existence and simply insane magnitude of occasional spikes in lease rates that, if properly pointed out, gives even someone who is not a precious metals buff the willies.

For reasons that have been discusses by various analysts over the past five to ten years, "leasing" of precious metals is a thinly disguised effort to flood the market with precious metals in order to "manage" their prices. Leasing is the most in-transparent of official financial transactions, with few if any reporting requirements, and a total blackout of information as to how lease rates are actually determined. The very fact that a central bank that holds gold or silver as a reserve asset on behalf of the citizens of its country is willing to "loan" that metal to banks at ridiculously low interest rates, rates that have no equal in any of part of any economy (other than maybe in Japan, and recently the US, where near-zero interest rates have been, or are fast becoming, a way of life) just smells like a rat.

High precious metals prices are always anathema to any government or central bank that relies on the public's confidence in its worthless paper currency, and for that very reason must always be 'controlled" if the fiat-based monetary system is to survive. It therefore only makes sense that a central bank should be willing to flood the market with precious metals at strategic times in order to achieve and maintain that control. So the onus of rodent body-odor always dwells on this practice by definition, and readers should not conclude from this article that any sort of legitimacy is conceded by seemingly treating lease rates as bona fide results of actual market forces..

For gold bugs and longtime precious metals insiders, this essay may present nothing new in substance. However, to the author's knowledge, nobody has looked at the commonly known problem of precious metals leasing quite from the angle of lease rate spikes yet. It is this angle of view that once and for all will force even those who are not precious metals buffs to recognize that when lease rates do appear to respond to market forces and end up spiking as high as they did in the cases of gold and silver rates here under examination, there is no rational explanation for the bullion banks' willingness to "borrow" metal at such incomprehensible rates - other than the fact that they simply have no other choice: bite the bullet - or die.

Nobody outside the precious metals world who has any kind of a life (other than financial "professionals" who have a vested interest in the fiat system) has the nerve to pore over volumes and volumes of analyses of the nature, function, and implications of derivative contracts. Nobody whose opinion really counts wants to bother wading through that intricate, twisted mess - and it is not the professionals whose opinions counts in the end: it is the normally belittled "man in the street" whose opinion, once it turns, will make all the difference in ending this game.)

Everyone can appreciate something that goes so immediately against the grain that it "visually jumps at your crotch" as some Germans would put it. Lease rate spikes are that "something."

Who leases gold and silver? Do ordinary people borrow gold bars just to look at them for a while and then return them to the central banks? No. It is the bullion banks, an exclusive circle of highly connected private banking institutions, who act as middlemen in the mining companies' efforts to hedge against falling prices by selling their production forward. In addition to their role as middlemen, these banks have also sucked on the giant udder of central bank largesse for more selfish reasons through the precious metals "carry-trade." They borrow metals to sell them short and invest the proceeds at higher rates than those ridiculously low metals lease rates (usually at or below one percent!).

It is easy to apprehend that large banking institutions are not in the business of intentionally wasting huge sums of money for no apparent reason. They are motivated by a desire to make hefty profits. That's how they got that big, of course.

The lucrative "carry-trade" is effectively enabled by the central banks' unusual "habit" of charging bullion banks only 0.5 to 1.0 percent interest for borrowing the metal in the first place. The bullion banks then go out and sell the metal at market, invest the proceeds in higher yielding treasury bonds, for example, at maybe five percent, then buy the metal back at the end of the lease terms at market price to return the metal to its owner, while pocketing the interest differential.

Naturally, this works only if two factors are present: if lease rates are sufficiently below Treasury bond yields to create a profit, and if the price of the metal at the time of repurchase is not significantly higher than it was when they sold the borrowed gold into the market.

Enter the phenomenon of lease rate spikes. In the case of gold, one can make a number of interesting observations from the following graph:

(Chart shown on original)

A) In 1999, lease rates spiked from one percent to almost seven percent. When the best expected profit from investing the short-selling proceeds lies at about five percent, how much sense does it make to keep borrowing gold all the way up the rate-spike ladder to seven percent? Yet, borrow they did, our friends the bullion bankers, all the way up to the top - or the rates never would have spiked that far.

(B) Both of the lease rate spikes in 1999 and 2001 coincide exactly with the two bottoms of this wonderful 'double-bottom' formation that gold has exhibited to the never-ending joy of gold investors. Strange coincidence, isn't it?

As to point (A), why would the demand for leased gold increase to such heights at a time when the price is so low - and has been dropping for such an extended period of time as show on this graph - so as to explain this sudden, most unusual spike in 'rent' for the borrowed gold? And even more importantly, what bullion banker in his right mind would even dream about borrowing gold that is so cheap in the market place at such horrendous and anomalous lease rates - rates that deny him any possibility of a "carry-trade" profit from the outset?

As to point (B), why did these spike coincide with such low gold prices as demonstrated by the two major market bottoms on this graph. Market price bottoms supposedly occur because the demand for a commodity is low relative to its supply. But lease rate spikes of this magnitude signify an extreme supply shortage, or the rates would never climb that high.

Now compare the gold lease rate spikes to the one in silver during early 1998:

Continued at:

http://www.gold-eagle.com/editorials_03/wallenwein032003.html

Veddy veddy eenterestink, eh?

Best wishes from your sore-wristed Flabud,
Dan