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Banks rush to lend gold to get dollar funding
Banks Use Gold to Get Dollar Funds
By Jack Farchy
Financial Times, London
Wednesday, September 14, 2011
European banks are rushing to use their gold to access much-needed dollar funding, in the latest sign of the growing liquidity crunch for the continent's financial institutions.
Gold dealers and analysts said that there had been a strong move to lend gold in the market in exchange for dollars in the past week, accelerating in recent days.
The rush has pushed gold leasing rates -- the implied interest rate for lending gold in the market in exchange for dollars -- to record lows, according to Thomson Reuters data. The one-month gold leasing rate has plunged to a historic low of -0.48 per cent, suggesting that a bank lending gold for one month would have to pay to do so, at an annualised rate of 0.48 per cent.
... Dispatch continues below ...
Lewis E. Lehrman on How to Solve the U.S. Debt Problem
Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.
Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.
Lehrman says: Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."
To read more and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:
Traders cautioned that few if any banks were likely to receive those rates, however, saying that they had been skewed by a widespread reluctance among bullion banks to take gold for dollars.
Large bullion-dealing banks take gold on deposit from a range of customers such as investors, central banks, and other commercial banks. Although they often lend out some of that gold around the end of quarterly reporting periods in order to reduce their liabilities, the latest move is unusually dramatic and highlights the stresses in the dollar funding market, according to bankers. The banks do not, however, lend all their gold and some of it is held in accounts that preclude them for using it for trading.
Edel Tully, precious metals strategist at UBS, wrote in a note to clients that the drop in lease rates suggested there was a lot of interest in exchanging gold for dollars.
"Pressure on banks' balance sheets in the last couple of months is exacerbating the usual end-quarter balance sheet-specific action," she added.
The cost for European banks to swap euros into dollars has jumped fivefold since June, hitting the highest levels since December 2008. The main reason for the spike is the demand for the US currency due to its growing status as a haven in the face of rising worries of an imminent Greek default that could spark a deeper sovereign debt crisis.
Traders said that the large volume of lending was one reason gold prices had struggled to achieve upward momentum, despite growing concerns over the eurozone crisis.
Spot bullion was trading at $1,818 a troy ounce on Wednesday, down 0.8 per cent on the day. It has fallen 5.3 per cent from a nominal record high of $1,920.30 last week, although traders say there has been strong demand from Asian buyers whenever prices fall below $1,800.
"A sharp decline in lease rates over the past two days is theoretically bearish gold as holders seek to use bullion holdings to raise cash," said James Steel, precious metals analyst at HSBC, in a note to clients. "But it may also be a sign of distress which is supportive of gold."
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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property
Company Press Release, October 27, 2010
VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:
-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.
-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.
-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.
Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.
"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."
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