"Even though the price of gold has fallen 25% this year… it's getting more and more expensive for banks to borrow the precious metal.
Large bullion-dealing banks and central banks will often loan gold on deposit for cash. Reasons for lending gold vary from plugging a supply-demand gap to a bank manipulating its balance sheet before reporting numbers. But as an incentive to lend, these banks usually receive a small percentage fee as part of the transaction.
But right now… the rate folks pay to borrow gold is at a post-Lehman Brothers high. The one-month gold leasing rate has risen from 0.12% a week ago to 0.3% today – the highest since early 2009.
If banks are demanding greater incentives to lend out their gold… this suggests that regardless of what the spot price of gold says, they want to hold onto their gold. Demand for physical gold is returning…
"There has been some borrowing interest recently. It's related to the demand for physical," Joni Teves, precious-metals strategist at UBS, told the Financial Times. She noted the Chinese are paying $40 an ounce above benchmark London spot prices for physical gold."
MMS