Silver Lease Rates Rise Sharply – Bond Yields in Portugal Rise to Record

Tyler Durden's picture

Submitted by GoldCore

Gold and Silver Lease Rates Rise from Multi Year Lows

Gold, and particularly silver, lease rates (see chart) have been rising recently. The rate is found by subtracting the silver forward offered rate from the London Interbank Offered Rate (LIBOR). This likely signals increasing tightness and illiquidity in the bullion markets (as recently said by Sprott Asset Management, and UBS yesterday).

The rise in silver has been very sharp, having gone from 4.29 basis points (0.0429%) to 77.65 basis points (0.7765%) since the start of the year (31 December 2010).

While the rise is very sharp, it is important to put it in context, and silver lease rates remain well below the levels reached after the Lehman Brothers systemic crisis in late 2008 when silver lease rates surged to 2.5%.

At the same time, the very small silver bullion market is clearly under strain as seen in the continuing backwardation. This clearly shows that demand for physical is robust, evident from retail demand in the US where there were record US Mint silver eagle sales last month. There are delays (3 to 4 weeks) to get branded LBMA silver bars (100 oz) in volume.

Strong demand is also seen in the import figures in Asia – particularly from China and India. This Asian demand is both for silver for industrial purposes, but also retail demand from Asians buying silver to protect themselves from surging inflation.

Gold Lease Rate - 12 Year (Monthly) GoldCore

Gold Lease Rate - 12 Year (Monthly)

Gold lease rates have seen a more gradual rise so far in 2011. Similarly to silver, gold lease rates remain near historic lows, suggesting there are no major liquidity issues in the gold bullion market (London Good Delivery bars) market at this time.

The lease rates are important indicators and bear watching.


Gold is down 0.32% against the US dollar which is higher against all major currencies today. Gold is marginally higher in euros, Swiss francs, and Aussie and Kiwi dollars. Silver is down 1% in US dollars and lower in all currencies.

Silver Lease Rate – 1 Year (Daily) GoldCore

Silver Lease Rate – 1 Year (Daily)

Asian equities were lower (except for 2% gain in the CSI 300) after the slight falls seen on Wall Street yesterday . European indices have followed their counterparts with the Spanish IBEX 35 particularly weak and the Euro Stoxx 50 is down 1.1%.

Portuguese 10 Year Government Bond – 5 Years (Daily) GoldCore

Portuguese 10 Year Government Bond – 5 Years (Daily)

German bunds (10 year) are down slightly from yesterday’s highest price this year and Portuguese bonds have come under pressure again with yields risen up to record highs of 7.62%. Ireland’s 10 year yield has also risen back above 9% after news of further massive losses in the banking sector and increasing talk of default in advance of the coming election.

Most commodities are lower today and NYMEX crude oil is down 0.77% to $86.02 and Brent down 0.23% to $101.55 a barrel. New York futures’ discount to London’s Brent widened to a record and is now some $15; very unusually, WTI crude is down 6.66% year to date while Brent is up 7.26%. The Saudi Arabian “peak oil” Wikileak revelations are still being digested by the market.

European Sovereign Debt Crisis Leading to Continued Safe Haven Demand

With the European sovereign debt crisis yet to be resolved and likely to deteriorate in the months ahead, safe haven demand for gold is likely to remain robust for the foreseeable future.

Key euro interbank lending rates jumped to 18 month highs yesterday afternoon. Excess money market liquidity is expected to drop to around 40 billion euros this week, down from 100 billion.

London interbank-offered rates for three-month euros rose to 1.049 percent: their highest since July 7, 2009.

The equivalent Euribor rate - traditionally the main gauge of unsecured interbank euro lending, which is fixed by a larger panel of European banks than Libor – rose to 1.089 percent, up from 1.079 percent.

The overnight EONIA rate jumped to 0.677 percent on Tuesday, up from a five-month low of 0.347 percent.

Dennis Gartman, the economist and the editor of the Gartman Letter, advised clients today to buy gold and sell yen. “We were especially impressed with gold’s strength relative to foreign currencies, rising far more smartly in terms of sterling or yen than in terms of the dollar,” Gartman said.

He is also bearish on the euro and questions whether it can survive the current crisis.


(Bloomberg) -- Gold-Borrowing Cost Near 5-Month High; Silver Rates Jump in 2011
The cost of borrowing gold in London is near the highest level in five months. Silver borrowing costs advanced this year.

The 12-month lease rate fell to 0.291 percent from 0.3033 percent yesterday, the highest level since Sept. 8, according to data compiled by Bloomberg. The rate has almost tripled this year, and is derived by subtracting the gold forward offered rate from the London Interbank Offered Rate.

“Scarcity of metal liquidity in leasing leads to high lease rates,” according to the London Bullion Market Association’s over-the-counter guide published on its website. “Heavy forward selling activity or a decrease in the supply of liquidity will push down forward swap rates and lead to upward pressure on lease rates.”

Gold for immediate delivery traded at $1,363.60 an ounce at 5:13 p.m. in London. The metal yesterday reached a two-week high of $1,368.18.

The 12-month lease rate for silver was at 0.7765 today. The rate reached 0.8023 on Jan. 20, the highest level since August 2009. That compares with 0.0429 on Dec. 31. Silver traded at $30.21 an ounce in London today and reached a 30-year high of $31.2375 on Jan. 3.

(Bloomberg) -- Gold Is ‘Ideal’ Form of Collateral, World Gold Council Says
Gold is an “ideal” asset to use as collateral for trading, said Natalie Dempster, director of government affairs at the London-based World Gold Council.

JPMorgan Chase & Co. on Feb. 7 said it will allow the metal to be used as collateral for trading, following similar moves by CME Group Inc. and Intercontinental Exchange Inc. Dempster commented yesterday in an e-mail.

“In many ways, gold is the ideal form of collateral as it does not bear counterparty risk.

‘‘The credit risks associated with many other assets that are widely regarded as highly liquid and have traditionally been used as collateral have sharply increased over the past year, most notably those of peripheral euro area government bonds.

‘‘Gold provides an excellent alternative.’’

(Bloomberg) -- Scotiabank Plans to Sell Gold to Consumers in Mexico, Dubai
Bank of Nova Scotia, which sells gold coins and bars to clients in Canada through an online store, plans to establish similar programs in countries such as Mexico and Dubai, Vice Chairman Barry Wainstein said.

“We’re looking at a number of different countries simultaneously,” Wainstein said in an interview. “In 2011, we may be up and running in one or two countries.”

Canada’s third-largest bank by assets has been expanding its ScotiaMocatta business, which trades and distributes metals such as gold and has roots that date back to 1671. The bank’s total revenue from precious-metals trading was C$245 million ($246 million) in the fiscal year that ended Oct. 31, a 53 percent increase from C$160 million two years earlier. ScotiaMocatta doesn’t disclose its financial results.

“We think we can roll out our retail product suite to a number of other countries,” said Wainstein, who is also the global head of foreign exchange and precious metals for the lender’s Scotia Capital investment-banking unit.

ScotiaMocatta opened its so-called eStore in September 2009, allowing Canadians to purchase physical gold valued at up to C$10,000 by ordering online. Clients outside of Canada, or those buying larger amounts, typically do so through wholesalers, Wainstein said.

About 60 percent of eStore users aren’t Scotiabank clients, said Wainstein, who declined to say how many customers have used the site.

The Toronto-based lender, which has operations in about 50 countries, may expand in Mexico because of ties to its Scotiabank Inverlat consumer bank.

‘Global League’
Dubai would be a good market for expansion because of demand for gold in the Middle Eastern country, Wainstein said.

“We’re not competing in the Canadian league; we’re competing in the global league,” Wainstein said.

The price of gold, which rose for 10 straight years, has declined about 4 percent this year as signs of a strengthening economic recovery curbed demand for the precious metal as a store of wealth. Gold fluctuated near a two-week high yesterday in New York and reached a record of $1,432.50 an ounce in December.

“I’m not clear where the price of gold is going,” Wainstein said. “In a market like gold, it could spike up in a couple of days.”

Scotiabank has made two acquisitions in the bullion industry since 1998, including the purchase of about $900 million in precious-metals loans from Bank of America Corp. in 2006.

Wainstein, whose bank owns gold vaults in Toronto and New York and leases space within the Bank of England’s vault in London, declined to say how much of the metal it stores.

Bank of Nova Scotia fell C$1.11, or 1.9 percent, to C$58.06 yesterday in Toronto Stock Exchange trading.

(Law360) Silver class-action suits against Morgan, HSBC consolidated in New York
A judicial panel on Tuesday consolidated class-action litigation alleging that JPMorgan Chase & Co. and HSBC Holdings PLC violated antitrust laws by manipulating the silver market and potentially reaped billions of dollars while keeping the price of silver artificially low.

The U.S. Judicial Panel on Multidistrict Litigation on Tuesday consolidated the seven class-action lawsuits pending against the two banks in the U.S. District Court for the Southern District of New York.

"A majority of the domestic defendants are located in that district, and thus many witnesses and discoverable documents are likely to be found there," the panel ruled. "In addition, a substantial majority of the constituent and potential tag-along actions are pending in that district (including the first-filed action)."

(Bloomberg) -- Gold Funds in India to Top Equity Funds, Reliance Capital Says
Investments in gold funds in India, the world’s largest consumer of bullion, will top mutual fund equity investments in the next three to four years, according to Reliance Capital Asset Management Ltd.

Reliance Capital yesterday launched a gold fund-of-fund which allows investments as small as 100 rupees ($2.19) a month. The money raised will be invested in bullion through its gold- backed exchange-traded fund, Sundeep Sikka, chief executive officer of Reliance Capital Asset Management, said in a phone interview yesterday.

Demand for gold as an investment in India surged 73 percent in the 12 months ended Sept. 30, according to the World Gold Council. Indian mutual funds had $1.65 trillion rupees of equity investments as of Jan. 31, data on the Association of Mutual Funds in India website shows.

“I am very bullish, this gold category will beat that in the next 3 to 4 years’ time,” said Sikka, referring to mutual funds investments in equities. “It’s a very simple thing - only 40 million investors are in the mutual fund industry, compared to 500 million people are investors of gold in India.”

The gold fund is the first of its kind in India, Sikka said. Investors don’t need to hold a so-called Demat account to invest in the fund, he said.

“We are not selling gold to mutual fund investors, we are getting gold investors to the mutual fund industry,” he said. “In the long term we see the dollar weakening. With the overall global environment, gold will be a good investment.”

(King World News) Robin Griffiths - China’s Gold Reserves to Rise From 2% to 10%
With gold and silver on the move today, King World News interviewed one of the top strategists in the world, Robin Griffiths of Cazenove Capital. Griffiths had this to say about clueless western journalist commentary on gold, “The kind of western journalists that continually write down gold, two things, they almost certainly don’t understand the Asian culture, and they were educated as strict Keynesians and he (Keynes) made the remark it was a barbarous relic. And when they are really desperate they say well, Mr. Buffett said you have to store it and of course you don’t get a dividend out of it. The thing they are choosing to forget is you’re only going to buy it with a piece of paper, and the piece of paper is being printed and thrown from a helicopter window, and they just choose to ignore that fact.”

Griffiths continues: “For as long as interest rates are super low, there’s no negative cost of holding gold. There is a seasonality to gold and very often it doesn’t start running until the end of February...Once we get into March, I think we can expect it to start motoring higher again.”

When asked about the strong demand coming out of Asia Griffiths stated, “I think we’re moving into a world where Chinese and Indian authorities are going to be more dominant than they were in the past, and in their culture of course gold is real money. On top of that, particularly China already has more than enough dollars, it’s finding that a problem. It doesn’t want to crack the dollar, but it doesn’t want to go long of any more because of its trading activities. Their national reserves are probably only just over 2% in gold at the moment and they could easily move up to 10%. I think this buying power will continue and I think gold’s secular trend will go a long way higher. So far it’s been a linear trend from $250 to $1,400, and technicians always know these things end up going exponential. I mean if we haven’t gone exponential by $1,400, the final high is going to be way higher than current levels.” Robin Griffiths is indicating that we should be looking for a staggering five-fold increase in Chinese reserves in gold. This is a monster undertaking and this confirms that Asian gold demand will be relentless well into the future. This means that China is looking to add roughly 5,000 tons of gold to their reserves, this is not good news for the gold bears.

(Bloomberg) -- Gold Priced in Rand Advances to Highest Since March 2009
Gold for immediate delivery rose as much as 0.8 percent to 9,916.423 rand an ounce, the highest compared with intraday prices since March 2009.



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william the bastard's picture

Why lease when you can bury?

tmosley's picture

You don't realize it, but you are exactly right.  No-one wants to lease silver, so the rates have gone up.  They would, in fact, rather bury it.

william the bastard's picture

the decision from the BOE could have ramifications for gold prices this morning. Gold prices could also be partially undermined by news that South African gold production in December rose by almost 3% above the 2009 December production tally. Another element that might be pressuring gold prices this morning, is evidence that some gold derivative instruments saw an outflow overnight.

You missed the irony on bury vs buy. But then you're no fun anyway.

tmosley's picture

You're just saying that because I'm smarter than you.  Also wealthier and better looking.

SWRichmond's picture

This is just an ongoing indicator of precious metals going into hiding.  Fekete called it: someday gold will not be available at any price.

youngman's picture

I agree with you on this...its getting very quiet but yet demand for the real stuff is increasing....I think people with money are moving into PM´s.....Carlos Slim was on this morning and he is.....and I bet all the JPM boys are too.....but their computers are keeping the prices down......soon and I believe in the next month...March is delivery month for silver...Gold this month....things will fall apart at the Comex...but I also believe the Feds will come in with some "save"....I am watching every is exciting....sad though also

kentfinance's picture

except for the guys selling the physical - they are having to lease it because of the growing shortage - so rates going up. bullish.

bankrupt JPM buy silver's picture

Found a pic of the silver master, should put a smile on yourface ;)

yellowbr's picture


Ecoman11's picture

This guy is reporting Silver sell outs as they happen daily.!/Silver_Watchdog

umop episdn's picture

Our 'leaders' are made of corruptium, our money made of kindling, our economy made of lies...and precious metals provide a way out. No rule of law, no way I'll play. 

jus_lite_reading's picture

Bravo. The whole world is upside down...

unwashedmass's picture


None of this matters. The government is going to fund JPM's continued manipulation of the silver and gold markets because they can't NOT do it.

Quite a place we've come to in the "freest, fairest, most transparent" markets in the world, Quite a place.

We have to tolerate the most extreme corruption preserve global stability....

and continue to provide JPM'ers with multi-generational wealth....

Fortunes Favor's picture

I thought this post would go well with the above list of P.M. stories: Precious Metals Outlook: Newmont(NEM) Takeover of Fronteer(FRG) Evidence of Phase II @

jus_lite_reading's picture

Again, for the second day in a row, pay no attention the rising yields of the PIIGS- the ECB said, "we've got everything under control! We just bought a used printing machine from the Fed..."

slow_roast's picture

Silver is poised to soar.  It seems that in the age of digital everything, the markets have completely forgotten that a physical shortage of something, in this case silver, should send prices exorbitantly higher.  Silver's move in the 2nd half of last year may look like child's play as more buyers head to Comex and stand for delivery.


If you can't get your 100oz bars in Canada, or Australia, or Europe, then where will you turn? 

RobotTrader's picture

Looks like a mad rush back into the U.S. Fiatsco today.

Gold and silver down today in U.S. Dollar terms.

But foreign currencies are getting crushed.  I'd keep an eye on gold priced in other currencies, could see a decent rally:$GOLD:FXE,$GOLD:FXY,$GOLD:FXC,$GOLD:FXS,$GOLD:FXA,$GOLD:FXM,$GOLD:FXB,$GOLD:FXF|D

terryg999's picture

Lease At The Fu*ken Dip

Zero Govt's picture

+1  ...... or ETF the fuken Dip

THE DORK OF CORK's picture

Will they just stick the Euro M1 on the Euro balance sheet and be done with it - the situation in Ireland is getting absurd , the liquidity for basic transactions is drying up - this causes far more damage then inflation of the money supply as all productive activities stop as people start to hoard.

Stopped into my bank recently and the desk used to wire money was no longer functioning - some poor staff member was handling all transactions at the counter of a large branch !

She had the courage to tell me to go back down to the old transactions desk - a manager came and had to deal with my transaction.

You have to admire that teller - I am sure she got into trouble for standing up for herself - you cannot buy dignity , you either have it or you have not. 

jus_lite_reading's picture

Thank you for the real world update. Can you tell me more- when are the elections? What do you expect? My reading has it seeming the Irish people are pulling money out of banks left and right. I know that if I was living there, I would have done that months ago and bought silver.

THE DORK OF CORK's picture

I believe they have delayed further recapitalisation of the banks until after the general election which is less then a months time - I would not be surprised if some bank Bond holders took a haircut after this so as to throw some meat towards the crowd - but the majority have escaped via the ECBs rollover prevention plan.

We will have to default on the ECB itself if we have any dignity left and I am afraid I do not see it in large measure yet as it will take tremendous courage because  we have little internal wealth but euro deposits that can be inflated or defaulted at will. 

jus_lite_reading's picture

Interesting, thank you. Yes I do believe it's been delayed until after the elections. We all know why...

Catullus's picture

Backwardization with the lease rates baked in?

oogs66's picture

Where are you getting your portugese 10 yr bond yields?  I don't get them quite so high.  I look at the 3.85's of 21.  Are you using the 4.95's of 23? It seems like those traded closer to your yield.  Those bonds should trade wider because the $ price is not insignificant for such a stressed situation.  The higher coupon basically forces the yield to be higher to compensate for the higher price of the bonds.  In any case the situation is clearly bad and getting worse, regardless of which portugese bond you look at. 


I remain convinced that yesterday's decision to delay capitilization payments in Ireland til after the election are significant.  Is someone finally realizing the downside is similar, but by letting the banks fail, the people get the potential upside, rather than the bankers?

gwar5's picture

Yep, liked it. 

The fact there is a lot of movement towards metals and real money from serious persons is all good.


Snidley Whipsnae's picture

Mish says that anyone that believes that the Fed is suppressing the price of gold is "wearing a tin foil hat"... fact, he goes on to say that anyone that believes any of the items enumerated below in his 'Theory 1'... is wearing a tin foil hat.

Count me among those wearing a tin foil hat!

Theory #1

  1. The Fed is buying futures to support equity prices. It has done so for 10 years but no one at any trading desk anywhere can confirm. How this happens, and how the Fed keeps all those futures off its books is the best kept conspiracy secret in the world.
  2. The Fed and JP Morgan are suppressing the price of gold and silver. How and why and for what purpose the Fed and JP Morgan would want to do this is subject to much debate. Details of the exact mechanism and who is involved is the second best kept secret in the world, but clues are hidden in 30 year old documents as well as commitment of traders (COT) reports.
  3. The Fed will not let the market drop
  4. The Fed is mysteriously all powerful even though it could not stop the S&P from plunging to 666 in the crash, nor could it stop gold from rising to 1400 from 250.
  5. There is no contradiction between points 3 and 4 because this is a planned conspiracy from the outset so that JP Morgan and Goldman Sachs can rule the world.

THE DORK OF CORK's picture

Never liked Mish - he is a fake Austrian - he believes in the superioty of interest income over wages for a days work - never bought into his twaddle.

taraxias's picture

Mish has been caught on the wrong side of the trade for a long time now. He'll continue to scream deflation even as we are being devoured by inflationary flames. He's being very cagey by slowing shifting his focus from deflation to "blame the unions". In his small mind he hopes that his deflation drivel may ultimately come true if all of us were ultimately forced to accept working for minimum wage.

In short, Mish was okay a few years ago but he is now irrelevant for the most part. 

Snidley Whipsnae's picture

You gotta love his 'point 1'... He neglects to mention that no one has been allowed to audit the Fed nor allowed to count the actual physical gold owned by the US.

He also seems incapable of believing that the Fed would keep multiple sets of books... Meanwhile we know any bank/business that knows that it will never be audited will certainly do anything to retain that status and power.


  1. 'The Fed is buying futures to support equity prices. It has done so for 10 years but no one at any trading desk anywhere can confirm. How this happens, and how the Fed keeps all those futures off its books is the best kept conspiracy secret in the world.'
StychoKiller's picture

...and how the Fed keeps all those futures off its books is the best kept conspiracy secret in the world.'


Computers only respond when you KNOW the right question to ask!

Snidley Whipsnae's picture

"Sitka Pacific Capital Management is an Absolute Return asset manager helping investors manage and grow their wealth independent of the markets. Our clients benefit from our focus on wealth preservation through our absolute return investment strategies, which are designed to provide growth with less volatility and less risk."

EscapeKey's picture

Who's more arrogant - Denninger or Mish?

Snidley Whipsnae's picture

A toss up...

Both are disingenuous when it comes to discussions of PMs...which leads me to believe that they are closet Keynesians and believe that PMs are indeed 'barbarous relics'...

bronzie's picture

" fact, he goes on to say that anyone that believes any of the items enumerated below in his 'Theory 1'... is wearing a tin foil hat."

when I wear my hat I like to sing the song

Tin Foil Hat song

economists_do_it_with_models's picture

Off topic question.

Regarding the recent post about bearish leveraged ETF's/ETN's...

Not sure if anyone else has run into the same issue, but whenever I try to short any of those symbols, I get a message that my broker has no shares available to short.

If the shorts have to buy to cover eventually, could that create a short squeeze where the bearish leveraged ETF's/ETN's might actually flip the script and outperform the bullish ones for a brief while instead of underperforming like usual?

Could those rejected orders be viewed as a contrarian indicator that everyone is too bullish?  Sort of like when Citi was unavailable to short when it got beat down to less than $4 back in 2008/2009?

bronzie's picture

"Could those rejected orders be viewed as a contrarian indicator that everyone is too bullish?"

I'm not an expert on shorting but doesn't it vary from broker to broker what shares are available for shorting?  Your broker may not have any but another broker does?

Dick Darlington's picture

And now Portugal is one of the best performing market in ten yr sector. JCT did a nice 40 bps stick save and all is well again. Very little makes sense in this centrally planned ponzi world nowdays.

Bahamas's picture

At this point: where's the difference between the Fed and the Ecb? They both are owned by the same private banks, right?


Hephasteus's picture

Needs moar. Underwater mining, can't eat it, the fed is going to but a stop to the fed's qeIII, rumors that jp morgan found a stash of silver someplace trolls.

Sudden Debt's picture


Mike2100's picture

Yes, really it is speculative move.

What changed for Markets send Portugal's yield to this high levels. NOTHING!
SPECULATORS are working once again.

Portugal was one of the best countries in EU last year with exports raising  16% and GDP 1.4%, January the income from taxes to reduce public deficit rose 15%, so what markets want more to see the reality.

It is insane how can inteligent people to accept that this Portugal's bond moves to be normal. Do this people can't read numbers anymore?
Speculators drive their cars with closed eyes, no more words are needed!!

Lusitaniae Habilitas

A_MacLaren's picture

Plata Putas!

Regarding the consolidation of the Silver Manipulation cases against JPM and HSBC, does anyone know it that includes the RICO suit that was filed as well as the other non-RICO suits, and does or would this impact the outcome(s)?

Not being a lawyer nor playing one on teevee nor the internet, would this be multiple allegations/counts that would be independently determined?

gwar5's picture

Yes it includes them (from GATA). They were consolidated because they were virtually all from NY and could expedite depositions, etc. So said the Judge.

Not a lawyer, but I did stay at a Holiday Inn Express.

FranSix's picture

Silver lease rate should have risen sharply, because the price declined sharply vs. gold since Dec., except with a rebound lately.

Gold lease rates have risen for the same reasons, mostly that gold prices have been under pressure.

Its only when  gold prices are rising and lease rates are rising that the price fixing mechanism is falling apart.  But when precious metals prices rise, then lease rates are bound the dwindle into the negative eventually.  Then we're back into naked shorting of precious metals again on the LBMA, and then filling up with contracts on the COMEX.

If there is a run on the bullion banks, including the ETFs which will honour your request for divestment in physical metal, then being caught with positive lease rates will make the short position in gold look very bad.

There was an effort to buy production out of the mines which failed, so having bullion used as collateral in lending is just another way of supplying the endless chain of short sales contracts.

Not that this will be successful, but there are always central banks with their government's bond market in jeopardy that will be eager for fresh lending of any sort, obtainable through any means.

A far more serious problem is waiting in the wings with another decline in the discount rate into the negative, where it becomes totally impossible to naked short precious metals.  Anybody with an unallocated account had better think very seriously about their gold position being used to liquify the banks.