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ChumpusRex

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  1. That's Saxo bank's trading platform (however, they licence it out to huge numbers of other retail CFD suppliers e.g. E-trade, Sucden, etc.). In terms of CFDs, their platform provides 'direct market access' - so you see the exchange's order book, and the price you pay is the price you see + spread - so if you're going to play with derivatives then it's one of the most transparent ways you can do it. I suspect these spikes are genuine spikes in the market - all sorts of strange stuff can happen when trading volume is virtually non-existant. Big (but not huge) trades that wouldn't normally cause much eyelid raising, can move the market substantially, especially if many of the market participants are playing it safe and not holding open orders. Of course, it could easily be a 3 rd party trying to manipulate the market. The gold market is pretty thin at the best of times. Moral of the story, is don't use leverage in a market that isn't functioning healthily.
  2. I think I've confused everyone here, including myself. I've now finally got to grips with the lease rate issue, and I was right the first time! Lease rates are to some extent artificial. The market determines the 'forward rate'. So what is the forward rate? The FO is the rate of interest that a bullion bank will pay you, if you wish to borrow gold, putting up USD as security. Essentially, you want metal temporarily, but want to hedge the price: e.g. you're a investor looking to 'short' gold, or you're a goldsmith, looking for some gold to practice with, etc. As a result, the forward rate combines both features of the gold market, and the USD credit market. If you then subtract out the LIBOR rate, which represents the credit market, you get the 'lease rate' which represents the theoretical cost of a 'naked' gold loan - i.e. a loan without collateral, which would not normally be made. So, just making up some easy numbers, if the USD LIBOR rate is 3%, and the gold lease rate is 1% and gold is $1000/oz - I could borrow a 100 oz bar, by putting up $100k collateral. The bank would pay me 3% on the $, and charge 1% on the gold - The bank then pays me the net (2%) which is the forward rate - I get the gold, and the bank pays me $5 a day for swapping it for greenbacks. In cases of a short term gold shortage, the lease rate will rise, representing the fact that it is difficult to find gold to borrow and you have to pay a premium for it. E.g. If lease rate rises to 10%, then I deposit $100k and take the 100 oz bar, but I actually have to pay interest on the gold at 7% per year. In this scenario, the gold is more highly valued than the $, so although I get the gold, the bank will require an extra $20 per day in interest. This high lease rate encourages large holders of gold to lend it, thereby freeing up the short term market: everyone is happy - the lender makes money on lending the gold, and the shorts make money because they sell the gold at its peak, and buy back after the short term crisis is over. What does a negative lease rate mean? It means that the forward rate is higher than LIBOR. In other words, swap US$ for gold, they will pay a higher rate of interest for the US$ than the market rate. Essentially, they are desperate to lend the gold out (or receive USD) even if they have to pay a premium for it. Why has the lease rate gone negative? I suppose, as lease rates rise in short term shortages, lease rates will fall if the short term market is flooded out. However, the actual gold market is different to the gold borrowing market. So, presumably, this move indicates a sudden move to encourage shorting of gold. POssible options: 1) Something has scared the shorts off, and they have been panic covering. The bullion banks are now getting their gold back and will have to return USD, and they are trying to stem the flow - either they don't want the gold back so quick (unlikely), or they're struggling to get the USD together (more likely). 2) There is a massive glut of gold on the spot market. The recent rise in price may have encouraged hoarders and hedged producers to start emptying stockpiles. 3) Possible asymmetric manipulation of the LIBOR rates. E.g. The FED's new liquidity injections have helped lower LIBOR, but not all institutions may be eligible for them. If bullion banks can't get hold of the USD liquidity then they may be forced to pay a higher USD rate in order to improve their balance sheets.
  3. But why would you borrow gold? Platinum and palladium are used industrially as catalysts. They are shaped into the appropriate wires or pellets, used for a few months, then the surface is damaged or polluted, and they go back for recycling. Industrial users rarely buy the metals in that case, they borrow them, and then return them after re-refining. As a result, the lease rates for these metals are usually negative, because of strong industrial demand for borrowing them. Borrowed gold is of limited value for jewellery, which is the major 'consumer' of it. So, the only reason to borrow gold, is if you believe it's overvalued, and it's going to fall in price.
  4. Actually, I've just thought of something else: The LR really measures how easy gold is to borrow, and it's now getting hard. Wasn't there something recently about the Asia/Pacific/Oceania markets beginning to crack down on short selling - not quite outlaw it, but discourage it? It may be that a lot of big institutions, in that part of the world, are recalling leased assets for these policy reasons.
  5. OK. I got completely the wrong end of the stick in my first post. The 'gold lease rate' is a rather artificial measure. It is a measure of the difference between the 'forward' rate (which is the interest rate for borrowing gold) and the USD LIBOR rate. Large holders of gold, e.g. banks and hedgies, are keen to lend out their gold, so that they get some income from it. Because blocks of gold are less desirable to the market than USD, this generally requires interest rates lower than the USD. So, let's take the hypothetical scenario where institutions are prepared to lend gold at 2%, with a USD LIBOR of 3% - the lease rate is 1%, indicating the 'income' that you would achieve if you shorted a gold bar. This means that the lease rate is inherently connected to a) the supply/demand of gold for shorting and the USD LIBOR. Anyway, the gold lease rate really is negative at present (although not quite as dramatic as the kitco charts make out - I think it's a data error, probably because the software hasn't correctly handled the fact that the lease rate really is negative). What a negative lease rate means is that the IR for borrowing gold exceeds the cost for borrowing USD. The reasons are polar opposites to what I suggested in my now defunct post. 1. There is a massive swing in gold/supply demand - where there is abnormally high demand for gold on loan, and/or abnormally low supply. In other words, there is very heavy shorting, and/or institutions are trying to recall their loaned gold (possibly to sell, possibly because of concerns over counterparty risk, etc.) 2. There has been a swing in USD supply/demand - with some modest drops in USD LIBOR recently - likely as a result of FED policy in providing 'liquidity'. 3. The gold futures market is in contango; i.e. the spot price for immediate delivery is lower than the price for future delivery. This encourages the building of stockpiles (not a problem with gold as it is easily stored) and may be related to a high level of available gold as a result of short positions. What does this mean for the price? It's difficult to tease out, as this has both bearish and bullish signals (short term bear, longer term bull). Something has really whetted the shorts appetite recently, as this negative rate was a new thing on Thursday. Now, I'm not really a great believer in technical analysis, but you've got to admit the short term indicators are roaring rather than mooing. P.S. The moral of this little catharsis is that you shouldn't believe everything you read on google. There seemed to be quite a consensus opinion that the problem was panic short covering. The second moral, is to check your + & - signs when doing complicated sums - you may get the answer you want for the wrong reason. P.P.S. I hope I'm right this time. I don't have to resort to conspiracies this time, which bodes well.
  6. Deleted because I'm talking nonsense. Update pending.
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