Get paid to borrow gold and silver?

April 2nd, 2008

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For the vast majority of us, gold is a lump of metal that does nothing. As we said before in Is gold an investment?,

… since gold is a boring, inert metal that does not have much pragmatic use and does not pay dividends, income or interests, it is completely unfit for ?investment.?

But for a certain class of gold owners, they DO earn interests on gold. Right now, instead of receiving interest for lending out gold, they are paying people to borrow gold. Who are these gold owners?

They are the central banks. The ‘interest rates’ on gold is the gold lease rates. Typically, central banks lend out gold through bullion banks, which then pass them on to the market. Eventually, the gold has to be repaid with ‘interest’ paid with more gold. Sometimes gold producers pre-sell their gold by borrowing them from central banks first and then repaying those borrowed gold (with interests, of course) later through their own production.

Right now, at this point of writing, the gold lease rate for 1 month is -0.0483%. This negative lease rate has been going on since last week. For silver, the lease rate for 1 month and 2 month is -0.04% and -0.0379% respectively.  This is a very curious phenomenon. In other words, central banks are paying for others (e.g. bullion banks, gold miners,  hedge funds, etc) to borrow gold to sell to the market. In other words, central banks are paying for others to ‘short’ gold.

That could be the reason why gold prices had been falling recently.

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