Negative interest rates and gold
“We can conclude that the basis for highly geared interest rate arbitrage by borrowing gold is running into a brick wall. Not only is there no incentive for lessors but also there is also a diminishing appetite for lessees, because the opportunities are vanishing. Synthetic gold liabilities are being gradually reduced, not only by ceasing the creation of new obligations, but by buying bullion to cover existing ones. This will have been particularly the case when the USD yield curve began to invert in recent months (itself a backwardation of time preference), and was the surface reason, therefore, that the gold price moved rapidly from under $1200 to over $1500.”
USAGOLD note: Macleod revisits a largely forgotten aspect of the gold market – bullion banks and their influence on the pricing mechanism. This article is a must read.
Repost from 9-2-2019