Gold Borrowing Costs Fall After Drop in Price and Demand

The cost of borrowing gold dropped to a 13-month low in London, indicating more availability of metal amid signs of slowing demand from Asia.

One-month gold lease rates in London, the cost of borrowing the metal, fell to 0.0243 percent today, the lowest since June 19, 2013. The rate, derived by subtracting the gold forward offered rate from the London Interbank Offered Rate, declined from a seven-month high of 0.2702 percent set on April 17.

Bullion is set for a second weekly decline as the outlook for an improving U.S. economy cut demand for a haven. Data released this week showed slowing gold purchases by consumers in China and lower imports by the nation, the biggest buyer of the metal. An increase in gold liquidity supply can push lease rates lower, while rising rates may indicate a scarcity of the commodity, according to the London Bullion Market Association.

“Near-term liquidity is easier, there’s more metal around,” James Moore, an analyst at FastMarkets Ltd. in London, said today by phone. “It ties in with the fact that we’ve seen physical demand being curtailed, reflected in some of the trade numbers we’ve seen” in Asia, he said.

Bullion for immediate delivery reached a one-week low of $1,294.98 an ounce in London today, according to Bloomberg generic pricing. Prices have gained 7.9 percent this year, after slumping 28 percent in 2013 on expectations for less U.S. stimulus as the economy strengthens.

Lease rates climbed from as low as minus 0.568 percent in December 2011 to a more-than four-year high of 0.3067 percent in August 2013, data compiled by Bloomberg show. Gold reached a record $1,921.17 in September 2011 and then slipped to as low as $1,180.57 in June last year.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza