Understanding Gold Leases

Gold price technical analysis 30 - May, 2013

Sometimes, when we see the gold prices, another number is shown under the name of Gold Lease. What does this expression means?

Central Banks can’t sell gold openly in the gold market, right? There are too many government issues and the matter of public trust. So, they “rent” gold to Bullion Banks, like Citibank, Barclays and Bank of America with normally 1% interest rate. The current rates are less than 0.5%, which indicate that these are not normal times.

Anyway, the bullion banks take that gold and sell it in the open market, earning around 4%. But they have to return that gold to Central Banks. Thus, they have to buy gold from the future market. Otherwise, they will default. That’s where they make a decent 2-3% earns.

There is a risk of the prices going higher in the future market. Jim Sinclair, a precious metals specialist, noted that when gold certificates cannot deliver the physical gold, the whole paper gold market will die.

Maybe that’s what is happening now, and maybe there are rumors of market manipulation and bear raids on the future market. Maybe that’s the reason on the historic public sales of coins and physical gold.