Swaps, Leases, And Forwards - A Deep Dive Into The Gold Wholesale Market

Summary

• To gain a comprehensive understanding of the mechanics of the gold wholesale market, it's essential to be familiar with its key building blocks: swaps, leases, and forwards.
• Gold leasing is basically the same as gold lending. In the gold wholesale market, physical gold can be lent and borrowed, usually via a bullion bank.
• The interest rate of gold is called the gold lease rate. Interest can be settled in gold or currency in the over-the-counter (OTC) London Bullion Market, which is still the largest gold market globally.
• Next to leasing, gold industry participants can sign a contract with a bullion bank, either to speculate or for hedging purposes, to buy or sell gold at a pre-determined date in the future for a fixed price.

Aslan Alphan/iStock via Getty Images

To gain a comprehensive understanding of the mechanics of the gold wholesale market, it's essential to be familiar with its key building blocks: swaps, leases, and forwards. In this article, we will explore these components and their interactions to be