Lease Rates

For a brief moment this week starting Aug. 27, lease rates went positive, well over the discount rate in the U.S. This was due to a sudden decline of the Euro vs. the Swiss franc. (many real estate deals in Hungary are priced in Swiss Franc) Any time the face value of bullion leases priced in any currency falls below the actual spot price, then the lease rate jumps until the face value of the bullion lease is fixed eventually to the gold price in terms of the currency. (I make the comparison with the discount rate in the U.S. and the three month lease rate.)

So it was the currency fluctuation which gave the gold price a major boost on those days when bullion leases did not reflect the market price for gold. To follow upon this development, gold was sold directly into the market in the hopes of matching the spot price to the face value of the leases. But this also had the effect of boosting lease rates above zero, along with the currency decline in the Euro vs. the Swiss franc.

This activity is mostly in the Eurozone, so we see gold price chops coming in before the open on the COMEX.

Its very likely that currency swings affecting lease rates will add to bullion bank woes attempting to maintain control over the bullion markets. It will be the collapse of the price fixing regime attempting to control the gold price through leasing gold surreptitiously and selling the leases into the market that will be the door through which critical mass in the gold market will occur.

-F6