alert: gold lease rates double overnight

I wake up to find a nice rise in the POG and USD, the combination of which I like (i.e. POG price in AUD usually goes up). Nice morning for gold.

But really grabbed my attention was the doubling of gold lease rates.

First a definition:

Gold lease rates are defined as the LIBOR (Interbank Lending Rate) - GOFO (Gold Forward Offered Rates).

GOFO Rate are rates at which dealers will lend gold on a swap basis against US dollars. http://www.lbma.org.uk/stats

LIBOR is defined as "the rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time." http://en.wikipedia.org/wiki/London_Interbank_Offered_Rate

Overnight GOFO rates were relatively unchanged compared to Friday and the average for last week. By inference I take this to mean that LIBOR rose sharply indicating increased interbank borrowing costs although I cannot confirm as the LIBOR rate was not published http://www.lbma.org.uk/stats.

The GFC was PREMISED by massive volatility in the gold lease rates. LIBOR rates spiked during the crisis this being in essence the basis for the credit crunch (banks unwilling to create credit).

I take last nights gold lease rate spike to be a reflection of Greece's acceptance of the bailout package, where the bailout has soaked up much of the currently available funds allocated to credit supply. The risk of providing credit has thus increased, perhaps temporarily, until such time that the market can create more AAA rated debt through the issue of government bonds by say Germany or other credible sovereign nations.

So the lease rates might be a temporary spike or a leading indicator of a volatility in credit markets. It is the volatility that caused GFC 1 - could it do it again?

If it is a lead indicator then last nights gold lease rate jump could be giving us a month or so's notice of the next major crisis.

Time to watch with close scrutiny imo.

GC