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Negative gold leasing rates are tugging like a string on a brick for gold prices and the Swiss referendum will snap it

 -- Published: Monday, 10 November 2014 | Print  | Disqus 

By Peter Cooper

Gold prices will shoot dramatically higher if the Swiss gold referendum passes on November 20th because it will be the final release for negative gold leasing rates that are pushing for higher prices like a brick being pulled on a string, and only held back by the massive manipulation of the market by the global central banks.

The Bank of Japan’s QE9 and the coordinated hit on gold is just the latest example that even the dimmest of doubters ought to be able to understand. But what is happening with gold leasing rates is not a new phenomenon. They are pulling like a string on a brick with the inevitable sudden movement to come.

Leasing rates

Gold leasing rates first turned negative in July 2012. Negative leasing rates mean the supply of gold is so tight that dollars are being used as collateral to borrow gold rather than gold to borrow money. Physical gold demand has surged in recent years particularly in China despite and mainly because of the price fall engineered by the central banks.

Basically the supply of gold has been pulling in the opposite direction to demand for gold. There is not enough available for leasing so the return on leasing has gone negative to discourage it. Normally that would mean the gold price would go up.

What you are looking for then is the tipping point. What will change to make gold leasing rates positive and send the price up? Really this just has to be a ground shaking event such as the Swiss gold referendum on November 20th. It could be enough even if it does not pass.

‘No’ might still be enough

How would that work? Well what if a high proportion of Swiss citizens do vote ‘yes’ for gold. Can the Swiss Central Bank ignore this in its future policy deliberations? Probably not, unless it wants to have another referendum in the near future. It will still have to change its reserves policy somewhat towards gold and other central banks will follow, or show their hand at having already bought gold.

The other analogy to consider with gold leasing and gold prices is the proverbial boy with his finger in the dyke holding back a flood. The flood is right there in front of your eyes but it has not happened yet.

Gold prices are set to catch fire soon.


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 -- Published: Monday, 10 November 2014 | E-Mail  | Print  | Source:

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