Lease rate/contango observations: Notice that lease rates are increasing some: 1 to 6 months at 1.00-1.05%, and one year 1.45%. Also contangos on the futures are shrinking: you can still get 5.10 (annualized) on the June, 01, but the one year Dec, 01 is 4.67%. The contango between Feb, 01-Feb, 02 is 4.53%, the June, 01- June, 02 is down to 4.02%, and Dec.01-Dec.02 is 3.87%. So the carry trade spread between the one year out contango and the lease rates is only 3.22%. That's way down and would suggest to me if I was running a hedge book that it may be a good time to close out positions at one year and beyond. That is if you could find the liquidity necessary to buy?
Certainly since the big boy ABX is delaying 800,000 oz/yr Pascua, it would be essential for them to consider this step at this point. If interest rates drop as expected these carry spreads will drop even more, thus putting more pressure on the shorts. Lower US interest rates (a key variable in determining contango) should be very bullish for gold. I'm watching this and will post any significant changes here. |
