Banks step up gold lending for dollars

Section:

"'It's hard to understand,' said one New York-based bullion banker." No, it's not hard at all to understand in the context of the need of governments, central banks, bullion banks, and commercial banks to suppress the gold price during a crisis.

* * *

By Jack Farchy
Financial Times, London
Wednesday, December 7, 2011

http://www.ft.com/intl/cms/s/0/93885646-20fd-11e1-8a43-00144feabdc0.html

A dash for cash by European banks in a little-watched corner of the gold market has accelerated this week, highlighting the continued scarcity of dollar funding even after a co-ordinated intervention in the market by the world's largest central banks.

Gold dealers said that banks -- primarily based in France and Italy -- had been actively lending gold in the market in exchange for dollars in the past week.

The rush has pushed gold leasing rates -- the implied interest rate for lending gold in the market in exchange for dollars -- to record lows, according to Thomson Reuters data. The one-month gold leasing rate fell to a low of -0.57 per cent on Tuesday, suggesting that a bank lending gold for one month would have to pay to do so, at an annualised rate of 0.57 per cent.

... Dispatch continues below ...



ADVERTISEMENT

Prophecy Granted Landmark Chandgana Power Plant License

Company Press Release
Monday, November 21, 2011

VANCOUVER, British Columbia -- Prophecy Coal Corp. (TSX: PCY)(OTCQX: PRPCF)(Frankfurt: 1P2) announces that its wholly-owned Mongolian subsidiary, East Energy Development LLC, has received the license certificate from the Mongolian Energy Regulatory Authority to construct the 600-megawatt Chandgana power plant.

This 600-mw thermal power plant license is the first of its size issued by the Mongolian government. To ensure strict compliance with Mongolian laws and regulations in obtaining this license, Prophecy retained Mongolian and international consultants over the past 18 months and spent much effort on community relations.

Coal for the Chandgana mine-mouth power plant will be supplied from Prophecy's Chandgana Tal deposit, for which the company has already obtained a full mining license. Tal contains 141 million tonnes of measured coal and is located just 9 kilometers north of Prophecy's Chandgana Khavtgai project, a deposit with more than 1 billion tonnes of measured and indicated coal.

Chandgana is 60 km from Underkhann city (East Energy System) and 150 km from Baganuur city (Central Energy System). Construction of transmission lines linking the two cities through Chandgana is seen as a top priority for a much-improved and more efficient national Mongolian energy system.

John Lee, chairman and CEO of Prophecy Coal, says: "Prophecy has distinguished itself as the premier candidate to build the next Mongolian thermal power plant. There is an understanding among all stakeholders that Mongolia, being one of the world's fastest-growing economies, needs additional power. With the International Monetary Fund projecting a deficit for Mongolia of more than 600 mw by 2016, this need has become urgent and can no longer be delayed."

For Prophecy Coal's full press release, complete with maps, please visit:

http://www.prophecycoal.com/news_2011_nov21_prophecy_granted_landmark_ch...



"People are lending gold out to raise dollars," said one senior metals banker.

Edel Tully, precious metals analyst at UBS, said banks were "looking to offload metal either for balance-sheet reasons or funding, or both."

Large bullion-dealing banks take gold on deposit from a range of customers such as investors, central banks, and other commercial banks.

Although they often lend out some of that gold around the end of quarterly reporting periods to reduce their liabilities, the moves have been unusually dramatic in recent months as the eurozone debt crisis has caused growing strains in the dollar funding market.

Banks do not, however, lend all their gold and some of it is held in accounts that preclude them from using it for trading.

The rush to exchange gold for cash began in September, when one-month leasing rates fell as low as -0.48 per cent.

Traders cautioned that few if any banks were likely to receive the published rates since they have been skewed in recent months by a widespread reluctance among bullion banks to take gold for dollars.

Bankers said they were surprised to see such heavy lending just after the Federal Reserve and other central banks announced measures to ease dollar liquidity to the financial system.

"It's hard to understand," said one New York-based bullion banker. "This wasn't supposed to happen with the dollar swap lines in place."

The gold leasing rate eased slightly in the wake of Tuesday’s European Central Bank annoucement that 34 banks obtained $50.7 billion in three-month dollar funding. One-month rates were at -0.52 per cent, as borrowing interest returned, according to Ms. Tully.

* * *

Join GATA here:

Vancouver Resource Investment Conference
Sunday-Monday, January 22-23, 2012
Vancouver Convention Centre West
Vancouver, British Columbia, Canada

http://cambridgehouse.com/conference-details/vancouver-resource-investme...

California Investment Conference
Saturday-Sunday, February 11-12, 2012
Hyatt Grand Champions Resort
Indian Wells, California, USA

http://cambridgehouse.com/conference-details/california-investment-confe...

Support GATA by purchasing gold and silver commemorative coins:

https://www.amsterdamgold.eu/gata/index.asp?BiD=12

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:

http://www.goldrush21.com/

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16



ADVERTISEMENT

Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit:

http://www.sonaresources.com/_resources/news/SONA_NR18_2011-opt.pdf