Lending gold pays record high as 400-oz bars are lost to insatiable Asian demand

Gold Lending Rate Most Negative Since 2001 on Longer Refining

By Nicholas Larkin and Laura Clarke
Bloomberg News
Monday, November 17, 2014

LONDON -- The rate at which gold is lent for dollars is the most negative in 13 years as refineries spend longer recasting bars from vaults to meet demand from Asia, where consumers prefer smaller ingots and jewelry.

The one-month gold forward offered rate was at minus 0.22 percent today, the most negative since March 2001, signaling that dealers are paid to lend metal against cash, rather than paying for the privilege. It's also a form of backwardation, when earlier prices are more expensive than for later dates.

Holdings in gold-backed funds have slid to the lowest since 2009 and prices are near a four-year low as a stronger dollar and improving U.S. economy curbed haven demand. The gold lending rate has turned negative because refiners such as those in Switzerland are turning more bars typically weighing 400 ounces into smaller items such as 1-kilogram products. Indian third-quarter bullion imports more than doubled from a year earlier.

"There's a lot of demand going into Swiss refineries, which are basically transforming those big bars into smaller bars," Bernard Dahdah, an analyst at Natixis SA in London, said today by phone. "The leasable stuff is only for big bars. Once those bars become small bars and they go into households, they become much harder to go back into the market into a leasable form." ...

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