Thursday, December 15, 2011

Fall in gold prices should be slowing as lease rates move negative

An interesting viewpoint on gold prices was made today by Zerohedge as historical technicals show the rise and fall in gold prices are intrinsically tied to the rise and fall of the Libor lease rates.

As gold got crushed in trading over the past week, the lease rates steadily fell, and are now in negative territory.  This indicator should reveal the selloff of gold should be done, and bypassing a major crisis or event, should create a relative support level in the upper 1500's, lower 1600's for the near future.

...a good summary was presented by Jesse's Cafe Americain yesterday, who correctly suggested that record lease rates are a primary driver for the near historic sell off we experienced yesterday. In a nutshell, negative lease rates mean one has to pay for the "privilege" of lending out one's gold as collateral - a prima facie collateral crunch. The lower the lease rate, the greater the use of gold as a source of liquidity - and since the indicator is public - it is all too easy for entities that do have liquidity to game the spread and force sell offs by those who are telegraphing they are in dire straits and will sell their gold at any price if forced, to prevent a liquidity collapse. - Zerohedge

(Charts courtesy of Bloomberg via Zerohedge)

Today, gold has held steady, just down $2.00 despite the good (manipulated) economic reports.  We shall keep an eye out on the lease rates and how they affect gold prices going foreward to validate this correlation.


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