If Bullion Bank sells the gold on the spot market, it receives cash for the transaction. In the spot market, bullion and other commodities are traded at the dominant price. An increase in the supply of gold on the market reduces its price. Bullion Bank hopes that by the time the gold is purchased by the spot market, Bullion`s price will be lower, so that the bank can buy it back at a lower price than it originally sold. At the end of the loan period, the bank buys back the gold and returns it to the central bank. @StuartMD: If Acme Jewelry Company carries 1000oz of gold, it stores gold for $1.5 million. If the price of gold drops by 10%, the company could go bankrupt. You have to hedge against the risk of dollar prices. If they lease gold and end up making gold, that price risk will be eliminated. You only have to keep a profit margin to pay the interest on the metals, but it is a much smaller amount that is exposed to a price risk in dollars. The profit margin – I imagine – is maintained by adjusting the selling prices of the jewellery. Although Bullion banks are not the only parties offering the type of leasing described by Mr. Butler, I will use the „Bullion Bank Leasing“ label to refer to it.
As this is a real lease, there is physical gold available physically for the duration of the lease. Just as your apartment is physically there, if you rent it, your gold is physically there if you rent it through Monetary Metals. As this is a real lease, it is NOT „a promise to pay for gold later.“ This is an agreement to lease your physical gold to a company for a fee, for a pre-defined period. Because its short position was so large and because the platinum market is so small, its coverage has pushed up the price. This has happened because generally in the platinum market, much of the metal is leased. It would take a while to recover all the metal to make the delivery. Under these conditions, there were industrial users who knew that their leases were also due during this period. Because of this large short platinum cover, the price has drawn not only on the merchandise, but also on the platinum rental price. On that day, the industrial customer, who was expecting 3% to 4% for a one-year lease, was offered between 100% and 120% per year! The consumer had no choice but to return the platinum he had rented, buy it directly or accept the new price.
In leasing, there are many other models and it can be used for other purposes, much like on the stock market. Shorts for sale is such a use. This means selling what you don`t have, because you expect to buy it back cheaper at a later date. But in the precious metals market, you don`t need to do it with physical metal if you have access to the futures market. Speculation about physical bullion – borrowed and then sold directly on the market in the hope of buying back later at lower prices – simply makes no commercial sense if the futures market (also called paper gold) allows you to do so much more quickly, without the need for lengthy credit checks, as we have seen before. If you are interested, call us or email us to make an appointment for further interviews. Note that the platinum market is much less liquid than gold or silver, which means there is less supply and demand.