GOLD

[DoctorSolar]

Roger Weigand says $1007 is/was a price to watch out for, as it would be a double-top and would trigger profit-taking. Interview (audio) on kitco -- link at the bottom of this page: Sept 2nd interview

As I mentioned earlier I wonder when more people will start doing what RH and others on here are doing and take profits in gold! Sometime reasonably soon i think taking profits in GBP or USD will be seen as quaint/foolhardy

[G0ldfinger]

My take is: gold had just another boring day at the $1,000 level. Everyone and their dog knows anyway that it will soon go off to higher levels, so everyone is bored out of their heads and just waiting for it to happen. The USD got somewhat ignored by Au today, but that is nothing new, they don't always move at the same time.

[Pixel8r]

This was what I was talking about, when I mentioned a possible TRAP earlier.

The most bullish thing is the huge drop in the Dollar.

But you have to wonder, why has Gold done better?

I think the reason that it hasn't done a lot better is to do with the forces that being rallied against it. I don't think the battle i over by a long way though.

 

I hold GPR and physical gold & silver and haven't sold a thing today. Maybe I will regret it in a weeks time, but I doubt it.

 

 

[wren]

My take is: gold had just another boring day at the $1,000 level. Everyone and their dog knows anyway that it will soon go off to higher levels, so everyone is bored out of their heads and just waiting for it to happen. The USD got somewhat ignored by Au today, but that is nothing new, they don't always move at the same time.

It broke above 1000 in Asian trading and was knocked below 1000 in NY trading. Highly predictable.

 

In a few hours we go back to Asia.

 

I'm just pleased that it broke 1000 as I have got bored waiting for that.

 

It may be a battle of even weeks to come at around 1000.

 

[TrueNorth]

All this hoopla today, and I just remembered -- we are still a far cry from the high in GBP!

[Pixel8r]

Yep, doubled up so sold half.

I didn't do that after regretting doing it with Silver Wheaton earlier in the year, my other half of SLW is now up 235%. I just think to myself where would I rather put the money.

 

This article on GPR and EDR may of helped today. http://www.stockhouse.com/Columnists/2009/...r-silver-miners

 

 

[Errol]

Don't particularly care about price movements but I'm not sure it will drop much this time.

 

I'd love it to, though. $500 gold would be great. I just can't see it. There are too many interested parties who would pile in.

[wren]

All this hoopla today, and I just remembered -- we are still a far cry from the high in GBP!

In euros too, and while today the USD price was going up, the euro price much less so. It didn't even make it to €700.

 

I think the cartel concentrated on getting a sub-1000 NY close in the face of a dropping dollar and they did a good job. But there are many more weeks and months of the gold season to come.

 

Silver did not bad today. The G:S ratio briefly dropped below 60.0 .

 

[G0ldfinger]

It broke above 1000 in Asian trading and was knocked below 1000 in NY trading. Highly predictable.

...

You could say so. Here is the bias in numbers in recent times:

 

http://gold.approximity.com/since2008/Gold_USD_AMPM.png

[safebetter]

The break above $1000 is getting lots of attention with the talking heads, anyone else see this below:

 

GMT 20:17 - Mary Ann Bartels (BoA/Merrill Lynch) talking to Carol Massar (Bloomberg News - US) "Gold is forming a head and shoulders BOTTOM" - WOW never thought I'd hear that - should we be worried - NO - masses just playing catch-up!

 

 

A few more articles quickly up there, they are usually slow to acknowledge the good news:

 

Gold jumps to 18 month high on....

 

US Stocks rise for a 3rd day as gold tops $1000

 

The masses finally pulling their heads out of their a$$e$?!

 

Hang on, stay long and strong - you can't read this market with TA

 

 

SafeBetter

[G0ldfinger]

We will possibly first have to go through gold $1,200 / silver $25 (g:s = 48:1) before we move on to gold $1,400 / silver 40 (g:s = 35:1).

 

 

[Justin Thyme]

It broke above 1000 in Asian trading and was knocked below 1000 in NY trading. Highly predictable.

 

In a few hours we go back to Asia.

 

I'm just pleased that it broke 1000 as I have got bored waiting for that.

 

It may be a battle of even weeks to come at around 1000.

 

I reckon that if this was a clean out in the vein of the last breach of the $1000 level, then we'd be looking at a $980 number by now. The profit-taking's probably tachnically-led and I'm sure the buyers'll be back mid-week. Besides, I think it might be time for the Asian markets to have a go at runnin' this show for a bit . . .

[electroweak]

Hi guys,

just for info, the Kitco site is reporting the Derived Leade Rate for gold as:

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

 

1m: -0.04

3m: -0.07

6m: 0.22

1y: 0.63

 

normally these rates rise steadily 1m <3m <6m< 1y

but the 1m/3m has reversed !!!!

What does this mean ??

 

Also Silver is in almost the same situation.. Sorry can't think too tired!!

 

[Pixel8r]

Hi guys,

just for info, the Kitco site is reporting the Derived Leade Rate for gold as:

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

 

1m: -0.04

3m: -0.07

6m: 0.22

1y: 0.63

 

normally these rates rise steadily 1m <3m <6m< 1y

but the 1m/3m has reversed !!!!

What does this mean ??

 

Also Silver is in almost the same situation.. Sorry can't think too tired!!

It means the bullion banks are paying you to short gold and silver. They must be really desperate

 

 

[grumpy-old-man]

Hi guys,

just for info, the Kitco site is reporting the Derived Leade Rate for gold as:

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

 

1m: -0.04

3m: -0.07

6m: 0.22

1y: 0.63

 

normally these rates rise steadily 1m <3m <6m< 1y

but the 1m/3m has reversed !!!!

What does this mean ??

 

Also Silver is in almost the same situation.. Sorry can't think too tired!!

 

that's backwardation isn't it ?

[G0ldfinger]

that's backwardation isn't it ?

EDITed: Sorry, no, I got this wrong earlier. This negative lease rate thing has been so for quite a while. See http://www.lbma.org.uk/?area=stats&page=gofo/2009gofo (right hand side).

 

It means that the corresponding gold forward rate (=GoFo, the interest you pay for borrowing gold) is smaller than the corresponding inter-bank interest rate (LIBOR).

 

Lease Rate = LIBOR - GoFo

[Pixel8r]

that's backwardation isn't it ?

No backwardation is when it is cheaper to buy gold in the futures market than it is for immediate delivery. Lease rates deal with the amount of interest that you need to pay to lease the gold from a bullion bank. So currently they will pay you to borrow gold from them for a month.

[marmite]

that's backwardation isn't it ?

 

I believe it is. This has been building up again for a while. People are paying a premuim to hold gold today ( near month ) rather than wait for delivery in the future ( future contract month ). Happened last year too.

 

Loads of discussions as to what this actually indicates.

[Pixel8r]

I must be getting confused. I thought lease rates is the rate that banks can borrow gold at. Can someone please explain my confusion.

 

 

[enrieb]

My stand is that this is the biggest financial crisis ever (in the history of mankind at least) and that we only just got started (2 years ago). As my main indicators when I will sell gold I use the house:gold index and the Dow:gold index (check out the charts linked to in my signature). The reason is that these are real things measured against other real things, and the things I might want to buy from my gold (and silver) in the end might be stocks and property.

 

I expect gold to go a lot higher over the next decade for a whole host of reasons, mostly due to the geo-political fall out that will emerge from the economic crisis and the shift in power from the west to the east.

 

There wasn't really a recovery from the great depression, the economic crisis transformed into a geo-political crisis. Advocates of Nationalism, Fascism and Communism found people desperate enough to follow extreme solutions to the problems causes by the depression. Trade wars and long term disputes over land, borders, resources and trade routes turned the geo-political crisis into a world wide war. The same pattern of geo-political crisis and war/revolution follow most major economic crashes, even if it takes a decade or more for things to reach boiling point.

 

This economic crisis is not going to resolve itself peacefully, and when we throw peak oil and climate change into the mix things could get very ugly. (I accept that peak oil and climate change are disputed by many)

[enrieb]

$1006.80

 

From:

 

This is the definitive version, by which all other versions pale into insignificance.

 

From: http://www.youtube.com/watch?v=DvQwXOCKNLY

[Pixel8r]

Lease Rates

 

 

The lease rate is the cost of borrowing gold. In much the same way that individuals borrow dollars, pay an interest charge, and then return dollars to the lendor, gold bullion participants will borrow ozs of gold, pay a borrowing cost, and return the ozs of gold to the lendor. The debt is measured in terms of ozs as opposed to dollars. The value of the metal when it is being borrowed or returned is not a factor. The central banks are the main lendors of gold and the borrowers are the larger industry participants. The lending and borrowing of gold is pretty much reserved for bullion bankers, mining companies, and jewelry manufacturers. You can ask your bank manager to lend you 10 ozs of gold, but you would almost certainly draw a confused look on his face.

 

 

There are two factors that determine the going lease rate which is determined by market forces alone. One is the difference in demand between gold for immediate physical delivery ( spot ) and gold contracts for later delivery ( futures ) . The other being the current interest rates for borrowing $US dollars.

 

 

High lease rates will encourage stockpilers of the metal to sell into the spot market even when they wish to maintain their inventory levels. Being guaranteed to buy the same metals back for a lower cost at a future date offers them every possible financial advantage. For this reason exceptionally high lease rates cause the demand for immediate delivery to be satisfied, and therefore never last too long.

 

So when there is negative rates it encourages stockpilers to hold as the price will be more expensive in the future. I have answered my own question.

[wren]

1000.50

[G0ldfinger]

No backwardation is when it is cheaper to buy gold in the futures market than it is for immediate delivery. Lease rates deal with the amount of interest that you need to pay to lease the gold from a bullion bank. So currently they will pay you to borrow gold from them for a month.

Yes, this is correct. See my correction above and explanation below.

[G0ldfinger]

GoFo = gold forward rate

 

Equation 1:

 

Lease Rate = LIBOR - GoFo

 

 

Example A (maturity = 1 year):

--------------------------------------

 

LIBOR = 6%, GoFo = 4%, Lease Rate = 2%

 

This means if spot gold is $1,000/oz, the one year forward price is $1,040/oz. If you enter such a contract, you agree to exchange in 1 year's time 1 oz of gold for $1,040. The contract itself comes at no cost (in an ideal world).

 

Imagine now someone wanted to borrow 1 oz gold for the length of one year and then give it back to you. How much should you charge for this service?

 

Well, the person could borrow your gold and sell it for $1,000 and put the money in an account that pays LIBOR. At the same time the person could enter a gold forward (which costs nothing, is only an agreement about a future transaction). At the end of the year, the person gets $1,060 paid (6% LIBOR account), but only has to pay $1,040 (the future now matures) to get the 1 oz gold back for you. RISKLESS PROFIT: $20. This is also called ARBITRAGE.

 

Why should you give that person this profit? Well, you won't. That's why you charge the person a Lease Rate of 2% (exceptions: you're stupid or a central bank). That way the person has to pay you these $20 you would have otherwise lost out on. You might want to charge a fee anyway because of the risks and administration costs that you carry.

 

Similarly, if for some reason the GoFo is higher than LIBOR, then you would pay the person to borrow your gold. This seems somewhat strange, but for instance getting rid of the gold for a while could save you storage costs. So, if LIBOR is tiny (zero?) and storage costs are high, this can actually make sense.

 

The GoFo itself usually reflects price expectations and storage costs.

 

BACKWARDATION is given if for a certain maturity the GoFo is negative. In particular, this means that the Lease Rate will be higher than LIBOR, i.e. you definitely want more than LIBOR for renting out your gold. This means that you don't worry so much about storage costs anymore. What you worry about is the return of your gold.

 

NOTE: If the Lease Rate is as in Eq. 1, no arbitrage (riskless profit) is possible for the borrower. However, backwardation might be a sign of increased default risk. If Eq. 1 is violated, arbitrage is possible. Only stupid entities (central banks?) would get their Lease Rates wrong and would make arbitrage for the borrowers (commercial [gold suppression] banks) possible.

 

So when there is negative rates it encourages stockpilers to hold as the price will be more expensive in the future. I have answered my own question.

Correct. Negative Lease Rates mean that you can expect (because of high forward prices) to make more money with gold than with cash (GoFo higher than LIBOR). So why would you exchange your precious for cash? BUT there is NO GUARANTEE that this strategy will work other than actually entering a forward. So, not selling now but wanting profit higher than LIBOR for sure means that one has to sell in the future (enter the future contract). It can still make sense to lend the gold out (see above).

 

Example B (maturity = 1 year):

--------------------------------------

 

LIBOR = 4%, GoFo = 6%, Lease Rate = -2%, spot gold = $1,000/oz

 

Get a LIBOR loan at 4% over $1,000. Buy 1 oz of gold and enter a gold forward. After one year, get $1,060 from selling your gold, pay your loan back with $1,040. RISKLESS PROFIT: $20. Now you only have to hope that storage of your gold did not use up these $20.

 

Examples B shows that in the case of a negative lease rate arbitrage might not be possible because of storage costs. Example A showed that in the case of a positive Lease Rate arbitrage (for the borrower) can prevented by the pro-active charging of the Lease Rate. In an ideal world (no default risk, no storage/admin costs), both examples would indeed lead to riskless profit. That's why in theory/in a perfect world GoFo = LIBOR and Lease Rate = 0%.

 

Expressed differently, if storage fees are small and/or central banks charge very small Lease Rates, then commercial banks or hedge funds can make arbitrage by doing what is outlined in these examples. IF however the commercial bank/hedge fund does NOT enter a future and instead takes on the price risk (which is very well possible) then Example A (positive Lease Rates) is a bet against gold, and Example B (negative Lease Rate) is a bet on gold. In this sense, negative Lease Rates (which we see now) could be a bullish sign.

 

NOTE: Above, I used Lease Rates in currency, not in gold. The difference is only theoretical as long as there is a proper futures market.