With borrowing gold to make up for hedging, I found this explanation on http://www.kitco.com/:
The lease rate is the cost of borrowing gold. In much the same way that individuals borrow dollars, pay an interest charge, and then return dollars to the lendor, gold bullion participants will borrow ozs of gold, pay a borrowing cost, and return the ozs of gold to the lendor. The debt is measured in terms of ozs as opposed to dollars. The value of the metal when it is being borrowed or returned is not a factor. The central banks are the main lendors of gold and the borrowers are the larger industry participants. The lending and borrowing of gold is pretty much reserved for bullion bankers, mining companies, and jewelry manufacturers. You can ask your bank manager to lend you 10 ozs of gold, but you would almost certainly draw a confused look on his face.
There are two factors that determine the going lease rate which is determined by market forces alone. One is the difference in demand between gold for immediate physical delivery ( spot ) and gold contracts for later delivery ( futures ) . The other being the current interest rates for borrowing $US dollars.
High lease rates will encourage stockpilers of the metal to sell into the spot market even when they wish to maintain their inventory levels. Being guaranteed to buy the same metals back for a lower cost at a future date offers them every possible financial advantage. For this reason exceptionally high lease rates cause the demand for immediate delivery to be satisfied, and therefore never last too long
Current lease rates are (sourced from http://www.kitco.com/): 1 m 0.1100% 2 m 0.1300% 3 m 0.1300% 6 m 0.1700% 1 y 0.1900%
The rates sound very cheap to borrow and as long as HIG produce the gold nuggets they may get them selves out of this situation.
Any thoughs?
PS I Hold
HIG Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
