GOLD

[G0ldfinger]

A broker down under going under since supposedly big margin calls couldn't be met. Let's see whether everyone will get his/her money out. I doubt it.

 

Posted On: Friday, March 28, 2008, 9:28:00 PM EST

...

Jim Sinclair’s Commentary

 

Some people find my suggestion to be wary of brokers by taking paper certificate delivery of shares incredulous. For commodity traders, have you already forgotten Refco?

 

Dear Mr. Sinclair,

 

This just caught my eye - link to the Australian Financial Review below:

 

Click here to view the article…

 

“Up to 1200 investors had their accounts frozen in Australia's first big stockbroker collapse since the 1990ies”

 

Regards,

CIGA Annette

 

http://www.jsmineset.com/cwsimages/Miscfil..._Australi...pdf

[G0ldfinger]

WTF has happened to the gold lease rates? This looks like something serious going on.

 

http://www.kitco.com/charts/g_leaserates.html

 

See also some comments on here: http://goldismoney.info/forums/showpost.ph...;postcount=9766

[Errol]

Normally that sort of drop would lead to a huge drop in gold.

[dopamine]

Normally that sort of drop would lead to a huge drop in gold.

manipulation or market ambivalence? Ambivalence precedes moves up or down, in life as in financial markets.

[Steve Netwriter]

Hmmmm.

 

GOLD LEASE MANIPULATION

by Rhody

January 19, 2006

 

SILVER LEASE RATE MANIPULATION

Addendum January 23, 2006

http://www.financialsense.com/fsu/editorials/2006/0119.html

 

[Steve Netwriter]

It looks a lot more 'unusual' on these :blink:

 

http://www.kitco.com/lease.chart.html

 

[dopamine]

It looks a lot more 'unusual' on these :blink:

 

http://www.kitco.com/lease.chart.html

 

good god! does anyone have an understandable idea as to what this may mean for spot gold? some links i dug up:

 

http://www.dailyreckoning.co.uk/gold-inves...ce-of-gold.html (pretty bizarre)

 

http://www.aci.net/kalliste/Gold3.htm (easier to understand)

 

I would tentatively say that it seems to me that these rates suggest huge short pressure, given that with negative lease rates people are in effect paying you to take gold off their hands.

[Pluto]

History repeating itself. Whenever there is a banking crisis the Fed gains more power.

 

Free markets are dead. Central planning is all the rage.

 

http://www.nytimes.com/2008/03/29/business...agewanted=print

 

The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

[wheelybin]

Not entirely sure I understand the relationship between lease rates and spot prices. I've been reading some opinions that regard it as a bullish signal, others bearish and some that it's manipulation. Any enlightenment on the subject would be much appreciated.

 

In the meantime, I found this which is interesting...

 

The Effect of Lease Rates on Precious Metals Markets

 

http://www.lbma.org.uk/publications/alchem...ch29_Leases.pdf

 

...It is interesting to note however, that an oversupplied spot market does not necessarily mean that the lending market is oversupplied (nor vice versa). Remember that during the late 1990s, when gold prices were declining from $400/oz in early 1996 to $255/oz by mid-1999, the spot market was awash with gold - but lease rates were higher then than they are now...

[wheelybin]

I'm trying to get a handle on the gold lease rates in my addled wheelybin brain. Can I run my questions and ruminations by you experts and see if they make sense?

 

I'm thinking that you would tend to lease gold only if you wanted to short it. i.e. borrow the gold, sell it, buy it back later at the lower price, pay back the loan and pocket the profit. If you wanted to go long gold, wouldn't you simply buy and hold physical (or borrow fiat to invest in metal if you wanted gearing)?

 

Do the negative lease rates indicate a lack of borrowing demand and hence a reduced desire to short gold. In other words could it signal an upward price expectation?

 

Or looking at it from the supply side - the leaser's point of view - I ask myself why you would ever lend something at a negative rate? To encourage shorting by making it cheaper to do, thus suppressing the spot price?

 

Does that make any sense at all?

 

Another big hole in my knowledge here is the mechanics of leasing gold. If you borrowed 10 tonnes, would you repay 10.5 tonnes for instance? Or is interest paid in cash on the spot price.... and in this case is it payable on the spot price when the loan is taken out or when it is paid back?

 

Whatever happens in the price charts, I can see a learning curve that is heading vertical.

 

-edit: clarity

[Duchaf]

I also find all this lease-rate stuff confusing

 

I seem to have picked up that there are two ways to express lease rates - the actual leasing cost (equivalent to APR, say - I think this is properly called the forward-rate) and the discount from LIBOR (ie, the expected percentage gain for the borrower compared with the value of money - assuming the price of gold remains constant). Note that this latter approach has cheaper borrowing expressed as a positive lease-rate. I thought the Kitco lease information was expressed as the discount from LIBOR. This would mean that they're not actually paying you to borrow the gold - quite the reverse .. At the moment the quoted lease rate is negative, suggesting that gold has a higher lending rate than LIBOR.

 

Or, put another way, this would suggest that at the moment gold is being valued higher than money by the markets. Isn't this a bullish sign for gold?

 

(Still, gold is being lent out at lower rates than banks are lending money to each other... perhaps they do value money higher after all...)

 

Kitco quotes a lease of -0.07ish for Friday, which is only just negative, but at least it is negative. The spike for Friday's lease rate at -2.5ish (if it isn't just an anomaly) could mean that there was strong interest in borrowing gold (say, to roll-over a short, perhaps because of an expected increase in the price of gold because of news leaked that was to be announced over the weekend...), but few willing to lend it (say, because of a perceived risk that the lenders wouldn't return the gold, or the day's allocation for leasing being fulfilled ... or perhaps too many people are now hoarding gold...)

 

Or is the above the reason I should stay with cash in the BS...

 

[hello all - my first post so be gentle... ]

 

[Pluto]

Let's assume I have some gold sitting at home not doing anything, and I can earn some extra cash by loaning you my Gold. Let's say the rate I can obtain is 1% for arguments sake. I go ahead and lend you my gold and my balance sheet I still own the gold and also have an income of 1%.

 

The person who has now borrowed my gold can sell it into the open market if they think the value of Gold is going to go down. As long as the price of Gold decreases by more than 1% then everyone is happy. I am happy because I still own my Gold and am earning 1%, and the borrower because he is showing a paper profit of any decreases below 1%. Now if the borrower is confident the price of Gold is going to go down they are going to want to borrow more to sell into the market, which in turn will force the price I will ask for borrowing go up say now 2%.

 

Now lets assume the borrower thinks the price of Gold is going to remain flat. They can borrow the gold, sell it for T-Bills yielding more than the 1%, and pocket the difference. This is what is reffered to sometimes as Gold carry trade.

 

Now, I would not read too much into lease rates. However, sharp movements in lease rates indicates a move is occurring in the price of bullion, which could be up or down. If you look at long term lease rates, you will see lease rates don't really move unless the price of gold starts to shift. Use lease rates as a signal in the market the same as the VIX is used in the S&P.

 

Stay long and strong.

[wheelybin]

Thanks Pluto. Very helpful!

[marceau]

Let's assume I have some gold sitting at home not doing anything, and I can earn some extra cash by loaning you my Gold. Let's say the rate I can obtain is 1% for arguments sake. I go ahead and lend you my gold and my balance sheet I still own the gold and also have an income of 1%.

 

The person who has now borrowed my gold can sell it into the open market if they think the value of Gold is going to go down. As long as the price of Gold decreases by more than 1% then everyone is happy. I am happy because I still own my Gold and am earning 1%, and the borrower because he is showing a paper profit of any decreases below 1%. Now if the borrower is confident the price of Gold is going to go down they are going to want to borrow more to sell into the market, which in turn will force the price I will ask for borrowing go up say now 2%.

 

Now lets assume the borrower thinks the price of Gold is going to remain flat. They can borrow the gold, sell it for T-Bills yielding more than the 1%, and pocket the difference. This is what is reffered to sometimes as Gold carry trade.

 

Now, I would not read too much into lease rates. However, sharp movements in lease rates indicates a move is occurring in the price of bullion, which could be up or down. If you look at long term lease rates, you will see lease rates don't really move unless the price of gold starts to shift. Use lease rates as a signal in the market the same as the VIX is used in the S&P.

 

Stay long and strong.

 

Nice summary Pluto. My experience of lease rates is that they are next to useless as an indicator for gold price moves. They aren't consistent enough at predicting either the direction or size of a move, so I've mainly discounted them.

 

The size of this shift is interesting, though, and it could well have an impact on the gold price. The problem is I'm not sure any of us will be able to determine what that impact will be in advance.

 

As for large moves in the gold price coming, you don't have to be a genius to predict that at the moment, we're in the middle of a correction!

 

 

[Duchaf]

Thanks Pluto

 

I think I should have been a bit more simple in my first post ... I still don't really know what the Kitco lease rates are. are they the actual 'interest rate' that you'd pay on the loan, or are they the more complex 'discount from LIBOR'? If they are the latter then the situation would be as you describe here:

 

Now if the borrower is confident the price of Gold is going to go down they are going to want to borrow more to sell into the market, which in turn will force the price I will ask for borrowing go up.

 

Otherwise I guess the same assumption would mean an expectation that the price of gold is going up.

 

 

Now, I would not read too much into lease rates.

 

I'm struggling to read much from any of the market indicators...!

 

[Pixel8r]

i see goldmoney and bullionvault as safer than perth, but ultimately the bullion is with someone elese, not YOU

 

This is incorrect. Your gold is held in your name in an insured VIA MAT vault. I can not think off a place I'd like it more, cheap storage and you can sell at the spot price instantly. Better than burying it in your garden.

 

I agree that ETFs could be dodgy, but believe GoldMoney & BullionVault are different. You can even arrange to withdraw your gold in LBMA bars.

 

[Pluto]

Thanks Pluto

 

I think I should have been a bit more simple in my first post ... I still don't really know what the Kitco lease rates are. are they the actual 'interest rate' that you'd pay on the loan, or are they the more complex 'discount from LIBOR'? If they are the latter then the situation would be as you describe here:

 

 

 

Otherwise I guess the same assumption would mean an expectation that the price of gold is going up.

 

 

 

 

I'm struggling to read much from any of the market indicators...!

 

Most of the market indicators are manipulated. Please read my earlier post about the FED setting up swat teams to go after brokers and all markets. This is the Plunge Protection Team on steroids. We are well on the way to Central Economic Planning or Communism. I always wonder why news like this hits the wires on Friday PM or at the weekend.

[Pluto]

This is incorrect. Your gold is held in your name in an insured VIA MAT vault. I can not think off a place I'd like it more, cheap storage and you can sell at the spot price instantly. Better than burying it in your garden.

 

I agree that ETFs could be dodgy, but believe GoldMoney & BullionVault are different. You can even arrange to withdraw your gold in LBMA bars.

 

I have no axe to grind with either Goldmoney or BV. However, you should be aware that your Gold is still subject to government scrutiny and control as the customers of Egold found out last year.

 

http://www.usdoj.gov/opa/pr/2007/April/07_crm_301.html

 

The four-count indictment, handed down on April 24, 2007, and unsealed today, charges E‑Gold Ltd; Gold & Silver Reserve, Inc.; and their owners Dr. Douglas L. Jackson, of Satellite Beach, Fla.; Reid A. Jackson, of Melbourne, Fla.; and Barry K. Downey, of Woodbine, Md., each with one count of conspiracy to launder monetary instruments, one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law.

[Steve Netwriter]

I thought I'd better record those charts:

 

Short -term:

 

 

 

This is unpresidented:

 

 

 

I'm waiting with baited breath to hear what Jim thinks about this.

 

 

It's just occurred to me. Was the so called IMF gold 'sale' going to be in April ?

[enrieb]

I have no axe to grind with either Goldmoney or BV. However, you should be aware that your Gold is still subject to government scrutiny and control as the customers of Egold found out last year.

 

http://www.usdoj.gov/opa/pr/2007/April/07_crm_301.html

 

The four-count indictment, handed down on April 24, 2007, and unsealed today, charges E‑Gold Ltd; Gold & Silver Reserve, Inc.; and their owners Dr. Douglas L. Jackson, of Satellite Beach, Fla.; Reid A. Jackson, of Melbourne, Fla.; and Barry K. Downey, of Woodbine, Md., each with one count of conspiracy to launder monetary instruments, one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law.

 

I agree that wherever you store your gold, there is always some level of risk. I like the idea of gold money/BV and being able to buy and sell instantly by clicking your mouse, but I personally prefer holding physical. Though there are also risks to holding physical, if you have a large sum of your assets in physical gold you may have to store them in a bank safety deposit box, which is again monitored by the government tax minions, I believe that in the 1930s US gold confiscation that safety deposit boxes could only be opened in the presence of a tax official.

 

Peter Schiff spoke about this risk issue on his latest radio broadcast and about the Perth Mint story that was going around eariler this week(funny this story should happen at the same time as a smackdown, you would think there would be more available if people were selling because the price has peaked)

 

You could choose to store your gold at home in a safe, but what if it were stolen and you lost your life savings? The best option is to diversify the way you hold and store your gold, some in BV, Goldmoney, Perth mint as well as keeping physical, you could keep some in a bank safety deposit box, perhaps keep some at home in a safe and some at your parents house.

[Pixel8r]

I have no axe to grind with either Goldmoney or BV. However, you should be aware that your Gold is still subject to government scrutiny and control as the customers of Egold found out last year.

 

http://www.usdoj.gov/opa/pr/2007/April/07_crm_301.html

 

The four-count indictment, handed down on April 24, 2007, and unsealed today, charges E‑Gold Ltd; Gold & Silver Reserve, Inc.; and their owners Dr. Douglas L. Jackson, of Satellite Beach, Fla.; Reid A. Jackson, of Melbourne, Fla.; and Barry K. Downey, of Woodbine, Md., each with one count of conspiracy to launder monetary instruments, one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law.

 

The CAP verification process on GoldMoney should stop them being used for money laundering, it is more stringent than opening a bank account. Even if the company has government attention, your gold is in your name at the vault and it is insured.

 

What happened in the E-Gold case. Did customers end up losing their gold?

[Pluto]

The CAP verification process on GoldMoney should stop them being used for money laundering, it is more stringent than opening a bank account. Even if the company has government attention, your gold is in your name at the vault and it is insured.

 

What happened in the E-Gold case. Did customers end up losing their gold?

 

I don't know what ended up happening, but I do know the site was shut down for a while. Just remember what the press release said this weekend about the FED extending its powers into all markets to protect the financial system. This gives them the power to make up the rules as they go along, all in the name of protecting the financial system.

 

We are heading into unchartered territories. The punters in the casino are starting the realize the tables are rigged, and the owners are scurrying around bolting the doors preventing them from leaving.

[ChumpusRex]

Deleted because I'm talking nonsense. Update pending.

[Duchaf]

Most of the market indicators are manipulated.

Fair point - we should concentrate on the real fundamentals - bailing out banks, printing money, etc, etc. I certainly intend to remain long and top up on dips as funds become available...

 

Please read my earlier post about the FED setting up swat teams to go after brokers and all markets. This is the Plunge Protection Team on steroids. We are well on the way to Central Economic Planning or Communism. I always wonder why news like this hits the wires on Friday PM or at the weekend.

It is getting very messy.... how much reach would the fed have in the UK - but I suppose a mess in the US is a mess for everybody.. Anyway, I guess we'll just adopt the same policy in 3 months, as usual

 

This is a good point to say thanks to you, GF and the others for all of your advice over the last 12+ months - I feel my family has at least got some security. Still pretty worrying, though.

 

[Pluto]

Fair point - we should concentrate on the real fundamentals - bailing out banks, printing money, etc, etc. I certainly intend to remain long and top up on dips as funds become available...

 

 

It is getting very messy.... how much reach would the fed have in the UK - but I suppose a mess in the US is a mess for everybody.. Anyway, I guess we'll just adopt the same policy in 3 months, as usual

 

This is a good point to say thanks to you, GF and the others for all of your advice over the last 12+ months - I feel my family has at least got some security. Still pretty worrying, though.

 

The Fed is the beast; the dollar is it's legitimate child. Other fiats (especially the GBP) are its bastard children. The Global economy just means the Fed has spurned more children. When Reagan told Gorbachev to tear down this wall, what he meant was let our dollars in, and so did other Communist countries like China. The cold war was about dollars. Those in the West accepted them and those in the East did not.