Experienced precious metals investors are familiar with the topic of “negative lease rates” for gold and silver bullion. However, even novice investors can infer what is being discussed: paying someone to “borrow” gold/silver bullion.

In general, any time we contemplate a situation where lenders are paying borrowers to borrow, the word “dump” immediately comes to mind. This is because we begin the scenario with a lender choosing to enter into a transaction with the deliberate outcome of losing money. Because the world of commerce is entirely devoted to earning profits rather than creating losses, this automatically also implies market-manipulation – and thus fraud.

It is with this general context that we can now look at the particular subject of the gold and silver markets, where lease-rates are now usually negative (and are negative again currently). With negative lease rates creating a prima facie presumption of manipulation and fraud, the issue then becomes whether the particular fundamentals of the gold and silver markets either support or refute that presumption of fraud.

The easiest way to approach this issue is by asking ourselves a question: are there conditions where it might make some crude “business sense” to enter into a transaction with the deliberate intent of losing money? This is ultimately a fairly simple question to answer since when we examine any market, we quickly discover that it is very difficult to construct even hypothetical circumstances where it would make sense to lease that asset at negative prices (other than illegal/nefarious purposes).

The immediate proposition we must confront is that the moment we separate ownership of an asset from possession of that asset that we impair our ability to sell the asset; we are intentionally “encumbering” that asset by lending it to a 3rd party. This is problematic with respect to any-and-all price behavior in a market...

 

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The Fraud of Negative Gold/Silver Lease Rates