dinsdag 27 november 2012

Why are the silver lease rates flat at Kitco?

At last we know the reason why the lease rates for silver were flat for so long (and still are). James Turk told us just recently that the LBMA (London Bullion Market Association) is no longer reporting silver interest rates and silver forward rates.

As you know, the lease rate is LIBOR minus GOFO and the same applies for silver. If they don't report the silver forward rates, you can't get the lease rate anymore, because we lost a parameter of the equation. James Turk says that the LBMA is underreporting on the silver forward rate. It's reporting contango, but actually it should be in backwardation. When gold and silver are in backwardation, that means we will have high probability of getting inflation.

That's what I'm making of this, unless there is someone who can give another explanation for the flat curve here:

Chart 1: Silver Lease Rate
Luckily, we still have the gold GOFO and gold lease rates. The GOFO is still in contango (3 month GOFO = 0.42%). So we just use those to "assume" silver forward rate ... If we do get a spike down in GOFO, then severe backwardation could show up.

One thing is certain. If gold lease rates go up, the GOFO goes down and that means the gold goes in backwardation. And that also means that silver is going in backwardation. That ultimately means that you should buy silver when silver lease rates go up.

If this event of the LBMA isn't a reason to buy silver, I don't know what is.

And finally, isn't it a coincidence that the silver priced started to move up just when the curve went flat (Chart 1)?

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