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

|Includes: SPDR Gold Trust ETF (GLD), SLV

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.

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.

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.


Gold is trading at $1,357.40/oz, €995.67/oz and £845.89/oz.


Silver is trading at $29.74/oz, €21.81/oz and £18.53/oz.

Platinum Group Metals

Platinum is trading at $1,826.00/oz, palladium at $815.50/oz and rhodium at $2,450/oz.