I know it is a hard pill to swallow. Why would an entity who...

I know it is a hard pill to swallow. Why would an entity who produce gold out of the ground would ever lease it in the first place...

In order to hedge 77,000 oz at A$1,746/oz AMI would go the a Bullion bank and a contract is struck. 77,000 oz of pre-existing above ground gold is encumbered at the Bullion Bank, the gold owner (insto, central bank, wealthy private individuals) would need to agree to lease its gold holding out at the GLR. 77,000 oz of pre-existing above ground gold is effectively leased by AMI at a specified period of return. A corresponding 77,000 oz paper gold derivatives is securitized by the Bullion bank and sold onto the open market for which AMI receives A$1,746/oz for each oz. When those derivatives matures the buyers may opt for delivery but more than likely they just hold it in place at the bullion bank originally held and the cycle starts over again if they end up wanting to lease it out.

Cost and benefits in participating in this market:
- AMI pays the Bullion bank and Bullion owner the ongoing GLR until the gold is returned. AMI can then sleep easy knowing that it has "hedged" its sale price.
- Bullion bank makes money on a fraction of the GLR paid, arbitrage, securitisation and storage fees.
- Bullion owner receives a fraction of the GLR, pays the storage fee to the bullion bank and if he played his cards right has extra $ for a new Maserati for his sons graduation present.
- Gold derivatives owner hold paper as good as gold without having to pay storage fee. Which counts towards his/her physical gold pile at the bullion bank at a certain date or paid out in cash at spot if it is an option

Why so complicated? Because no gold miner on-sells 77,000 oz of gold derivatives (futures, ETF etc...) on the open market and simply says trust me I'm good for it... It does not work that way fortunately. There are tinfoil hats out there that says gold derivatives don't have a single gold oz backing but that's conspiracy theorist for you...