17 May 2010

Errors in Rob Kirby Article

I'm just come across Rob Kirby's Forensic Examination of the Gold Carry Trade. When I get time I will respond to it, but in the meantime an exercise - can you find the errors in his article.

It is not the first time he has done it, see Backwardation: Facts from Fiction

If you need some help, my article Misinterpretation of Gold Lease Rates.

Update: this evening I get home and find more confusion about lease rates, forwards and gold carry in the comments to a Zero Hedge article. The comment is by one "Cheeky Bastard" who is a contributor to Zero Hedge, wonder if that means I'll never be able to get anything published there?

He is not alone, however. Brad Zigler made the same mistake in his article on backwardation in Dec 2008.

I keep on leaving correcting comments, but no one seems to be paying attention.


  1. Look forward to seeing your analysis. Rob "Cobalt" - I've seen the invoices - Kirby has a fairly spotty track record.

  2. Isn't there a risk of making Kirby appear to be a serious and credible source of information by linking to him and commenting on him?

    He went out on a limb staking his credibility on the tungsten story, and the rest is history.

  3. Bron-

    You are a better man than most for sacrificing time and effort to dispel ignorance and disinformation, of which there is quite a lot out there. Keep up the good work,

    I leave you with this beaut:


    Cheers, R

  4. Bron, thank you for your many efforts to demystify the gold market.

    Your work isn't all in one place, so I have to piece things together. Have I got the basics right?

    A "gold lease" is when party A lends party B some amount of gold and gets the same amount plus a fraction back later?

    And a "forward" is like a lease but when party B lends party A some dollars at LIBOR at the same time?

    Did I understand you correctly that it's the lease rate that is the "independent variable", the one that some actually sets and that the forward rate is whatever happens when you put the lease rate and LIBOR together?

    If so, then why is the forward rate usually some round fraction when the lease rates I see quoted are not round numbers?

    What does it mean when a published lease rate is negative? Does it mean the publisher is subtracting a forward rate from a LIBOR rate but not getting the two from the same source at the same time?

    When you say a published lease rate is a "mean" or an "indicator", could you go into more depth? A mean can't be negative unless some of the inputs to it are negative.

    Your work and time are being appreciated, whether anyone stops to say so or not!

  5. You're right on the lease, but a forward is just a transaction to buy or sell in the future, much like futures. LIBOR and lease rates are used in calculating forward prices as the transaction involves cash and gold.

    The LBMA lease rate goes negative because it is derived from GOFO and LIBOR. Those are just indicators and just applying a simple formula to them to get an indicative lease rate can result in a negative rate. I can assure you no one actually pays you to borrow gold.

    I will have to consolidate my stuff on this matter and put it in one post, as you suggest. These comments have been good, lets me know what needs to be made clear and what people's interest is in.