2012 Silver Crash?

OK so we have established that you know nothing about gold or silver leasing by the central banks. It would have been nice if you had read what I posted above. Never the less, I will attempt to educate you by answering your questions:

• First, I would like to see proof of it.Assuming you mean does gold leasing you only need to look at Kitco which not only provides the daily & historic lease rates, but also a definition http://www.kitco.com/glossary/lease_rates.html It is as I said, they lease is in ounces of gold, not currency amounts.
• Second, its an asset just sitting there doing nothing.I'm not sure there is a question here, but assuming that you believe it makes no sense for banks to hold gold as assets, I will point out the Federal Reserve has over 7000 tons of it in its Manhattan vault, more tons of it in the other FR vaults (there are published rules for accounting), and finally it's Gold Certificate Account that it holds for the US Treasury's gold which is another 7000 tons. This is a lot of gold sitting there which you claim is doing nothing. Yet, there it is and they spend vast amounts to protect it as well.
• If I was holding an asset generating me no returns, I would be open to leasing it out to others IF I could ensure I got it backThis ignores the subject that we are discussing. The lease rates are sent NEGATIVE. This means you not only fail to get any sort of return, you actually lose your gold. In other words, your logic fails because you assume that someone holding gold must be making a return on it and you are refusing to consider other reasons. This is the Chewbacca defense. Furthermore the Federal Reserve specifically states that one of the purposes for holding gold is to use it in the Exchange Stability Fund.
• As for payment, they are custodians of PM, why not get paid in PM and keep it easy accounting?I bring it up because your first attempt to dispute that gold leasing exists was an argument based on money which means you had incorrectly assumed this was how it was handled.
• This is a way their stockpile can physically grow, not a bad thing.You incorrectly assume that physical gold is moved and that the entities buying the leases are actually "customers" seeking to own physical gold. The only way a "stockpile" grows is if they screw it up and they have to actually supply gold to cover the short. I already spoke of this above so go back and re-read it. It's definitely something they don't want.

 

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Darn, I thought I was in the bullion forum. Can someone direct me out if the political forum and into the bullion? I've been collecting and buying bullion for many years. I bought 10 1996 silver eagles for $7 in 1996 and paid $96 yesterday for 3 2012's. It's all good! I like it at $5 or $50. if it goes up I smile, if it goes down I smile cause its not for sale unless I needed the money. Luckily thats never happened.

 

No, this is Abuse. Political is down the hall, just past Arguments.

 

For simplicity sake - laese rates are basically a factor of interest. If you own a commodity stored in a CME, LME, etc approved warehouse it is not held there free of charge. It has got to charge fees else the warehouse wouldn't exist. It has to make a profit. There are other carrying cost associated when holding a commodity. When an entity leases a commodity they take on the responsibilty for paying many of these costs. The lessor instead of loaning money are loaning a commodity and they are due a return equal to the amount of the market interest rate. At this point in time interest rates are so low that the warehouse/carrying charges amount to more money than what interest on such a loan would generate - therefore the lessor pays the leasee the difference producing a negative lease rate. A commodity lease is actually a loan but instead of loaning money you are loaning a commodity and as such the interest/rent is paid in like kind making it constant in terms of that commodity and not affected by the money valuation of the commodity in the market during the term of the lease.

The idea that a lessor is not earning a return when loaning a commodity at a negative lease rate simply is not true.

 

Thanks Fatima. You all have a far greater grasp of the situation than I do but I will keep some solid silver in the safe just in case. Win, lose, whatever? At least I hold something in my hand even if its just a pretty white metal

 

Is this the Monty Python Flying Circus forum? It sounds like I'm in the room where you get hit over the head lessons

 

Amen Brother! :thumb:

 

What part of Central Bank and the Gold Does Not Physically Move did you miss? Central Banks don't operate a for profit business, and there are no warehouse transactions for what we are talking about. Your conclusion/opinion is incorrect because you are talking about something that has nothing to do with gold & silver leasing as being discussed here. It might help to read what I've posted before you tell me that I am wrong.

 

Ok, I give up. If someone cannot understand why, if I have an ounce of gold and believe its going down 10% in the next month, but I can lease it and only lose 3% that this is a good deal for me, there is no hope really. As for why only certain people can lease gold, well I kind of want to make sure I am getting paid back, right?

Anyway, I read something interesting in the WSJ the other day. It talked about how oil prices will probably stay low regardless of Greece and Iran due to US production and massive production increases coming from Libya and Iraq. If someone really believes PM will skyrocket, I would invest in the miners. Oil has been a major component of PM price increases in my view, and if oil holds steady for an extended period, their profits should skyrocket if PM really does take off.

If you believe PM is going up, I would hold mining stock if you also believe oil will hold steady, hold physical if you believe oil is going up. In many ways PM is "storable oil".

 

As long as you absolutely refuse to accept central bank leasing exists and more importantly why it exists, then this is your best recourse. We are not talking about "people' leasing gold and your silly "person tote the note gold coin example" has nothing to do with it. You have demonstrated by your questions and demands for proof (which were given and now which you ignore) that you knew nothing about this and persist in these sorts of meaningless comparisons. So yes I agree, please give up. The party asking the question was satisfied with the answers given about gold leasing. It's too bad you came here to distract from that.

 

I accepted the fact central banks lease, that is fine. But you feel some fundamental need to assign nefarious motives to it. Ok, I will restate. If I am a central bank and have a load of non-income producing junk cluttering my safes, why wouldn't I try to profit from it? Loaning it out to trusted parties, (so I can be assured of getting it back), that pays me money, (or more junk), is a profit for me. If I believe the junk is going down in price next month by 10%, then I am smart to lease it out at -3%, and let the borrower take the hit for the other 7% loss.

I see not one thing nefarious in central banks leasing out their junk.

 

The only question I have, and maybe it was answered earlier and I missed it, is why would someone want to lease PM from someone else? What use is it to them?

 

Collateral is the main one that I'm aware of.

 

But...If you're leasing it, then it's not yours. Why would anyone accept leased precious metals as collateral?

Or does the contract stipulate that the leased PMs can be siezed in the event the leasee defaults on a loan?

 

I do not think that anyone even remotely attached to this forum could negotiate a gold lease arrangement with a central bank of any country, I seriously doubt that Greece central banks among others could. Yes, JPMorgan could, the CME group could, other specific Financial institutions and certain foreign central banks could, but one can not think of this as "Joe Public Bullion company" with his millions/billions, even leasing gold from a central bank.

If an individual had 1000 ounces of gold ( scale this to what ever level you wish) and wanted to do a DIY "gold leasing type of scheme" to obtain cash to loan out to a developer who can't get it any other source, but is trusted by you ( biggest factor in your project or in a central bank's lease), you could do this.

Sell the gold for cash. Buy a future contract or appropriate options that will allow conversion and thus delivery at a period before expiration of when the loan is due. Using margins until the conversion date, The remainder of the cash for sale of your gold would be the loan amount to your developer friend ( who you trust with your future , or who has transferred other equitable holdings to you, like rare art he doesn't want to really sell). To be profitable, the rate of your loan should be sufficient for your risk. The future contracts will negate most of your risk, you don't have to worry about storing/protecting your gold for the period, and you can make some money with the interest rate. Done right, you should only lose if the world goes to pot and you need your physical gold ( but Central Banks don't worry much about this), otherwise, when he pays the loan, convert your margin future to a delivery future, and pay the difference. If you figured right, you get your gold back and made some money.

BUT THEN, you realize oh my, I have to pay appropriate taxes on the original sale of my gold, and if gold went up, taxes on capital gains of the future contract ( I think they are reported to the IRS directly beginning in 2013 TY), and the interest on your loan. Central Banks don't worry about this, so they can lease gold at a negative rate as long as their plan brings a net gain at the end.

Some will feel it is a dedicated action to only lower or suppress the price of gold to prevent the public from seeing the "true" value of gold. I do not subscribe to this theory, I think it is all about profit. IMO.

Jim

 

Yes indeed. The original question was about the relationship between the silver lease rate and the price of silver. This rate only has meaning with the Central Banks and it's dealers. You are correct that individuals and even businesses don't get to participate here. It's got nothing to do with individual who may or may not lease their gold. It was clearly stated above, several times, but people seem to completely ignore it. At least the person who asked the question got his answer.

As I said earlier, Central Banks don't lease gold/silver for profit. Profit is meaningless to an organization which has the power to create money out of thin air. Instead, gold leasing is one of the tools available to monetary policies and market operations conducted by central banks. In regards to Greece, that country is sitting on several hundred tons of it so assuming they move to their own currency then it's new central bank will used it as backing with the other central banks. (and it's not done by fiat $ value)

 

Well it looks like $25 price point is going to be reach soon. FTWrath. Time to buy yet?

 

I've been waiting for silver to get back up to $30 or atleast well over $29 to sell some so I could buy more when it gets down to that $25 point. But that doesn't look like its going to happen and silver is getting closer and closer to $25 so I may have to sell next time it gets around $28.

On a side note, once it hits $25 does anyone think it will plunge further. Or will there be a huge buying rush that will drive up prices?

 

Well, my only experience with such drops was in the 80's. Yes Fatima I know its a "personal anecdote" so you can stop reading now.

Anyway, it seemed everyone was always predicting a "buying spree" when some threshold was hit. It would happen for a little bit, when 25, 20, 15 etc were hit there were some who thought this was somehow magical and their dreams of high silver prices would somehow magically appear because of such a number. I would predict the same this time, some people would think something is magical about the number and buy, but not many and if the market was still bearish it would then continue to fall.

Market price levels, ignoring fundamentals, are a sucker bet to hang your hat on. Plus, remember just a few years ago $25 was a VERY high silver price.

 

The problem I see with this is that if/when silver starts to trend again, either up or down, your program will lose money or opportunity cost. I know silver is in a trading range now, but the best opportunity most people have for making big money is to stick with a winning long term trend. I'm not sure what you are trading, but the bid/ask and taxes will take much of the profit out of it.