Gold Weighed Down By Lending From Institutions Looking To Raise Dollars

08 December 2011, 5:36 p.m.
By Kitco News

http://www.kitco.com/

(Kitco News) - A background factor pressuring gold Thursday was apparent significant lending of the metal by institutions looking to raise U.S. dollars, says HSBC. Gold fell with the euro after the European Central Bank president nixed speculation that the ECB would support the currency by stepping up its sovereign bond-buying program. There was investor disappointment in a broad range of markets, with equities and commodities falling.
“The gold price declines were so rapid and extensive that some investors theorized that central banks–including the Federal Reserve–were actively selling gold,”
HSBC says. “Unlike most central banks, the Fed does not have access to U.S. gold reserves, which are held by the Treasury and can be sold only on the instructions of the Treasury secretary. Rather, we believe it is more likely that gold lending by European commercial banks was interpreted as central-bank selling.
This is in keeping with persistently negative gold lease rates, which indicate substantial lending of gold by banks in return for USDs.
Gold leases are at their lowest levels since 1998, when gold reserves were being mobilized by South Korea at the height of the Asian financial crisis. Until funding difficulties at European banks are resolved, it is difficult for us to see any near-term halt in gold lending. This may help keep gold prices on the defensive.”

By Allen Sykora of Kitco News; asykora@kitco.com