28 September 2012

Negative lease rate confusion, again

Jeff Nielson again (see here for previously) proves he knows little about the gold market with this post on negative lease rates. See this comment of Jeff's for a seriously confused guy:
Let me explain this one more time.

GOFO is the "nominal" lease rate. As you (and others) have observed, you SUBTRACT LIBOR from that number to get the "real" lease rate.

Understand that LIBOR is a PROXY for inflation here. So this calculation essentially strips out inflation to tell us the REAL rate at which the banksters are leasing their gold...and when that (real) rate is negative it implies a fraud on the market.

LIBOR = inflation, GOFO = nominal lease rate, huh? My response:
Jeff, GOFO is not a nominal lease rate and LIBOR is not a proxy for inflation.

GOFO is a gold foward (ie future) rate. It is not a lease rate, nominal or real. Technically, as per http://www.lbma.org.uk/assets/OTCguide20081117.pdf it is "rates at which the Market Making Members will lend gold on swap against US dollars". What many people do is focus on the "will lend" and miss the "on swap".

I also don't get how you think LIBOR is a proxy for inflation. Are you seriously saying that 1 year inflation rates are 1%? Shadow Stats I think would disagree with you. LIBOR is the "cost of borrowing unsecured funds" as per http://www.bbalibor.com/

Finally, the Perth Mint does actually borrow gold from bullion bankers from time to time and I can confirm that we are not being paid to do so.

As at today, no counter response by Jeff even though the livefyre commenting system is showing him as "listening". Same MO as my Seeking Alpha exchange with him - just ignore the comment when its is clear you've lost the argument.

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