OK...so Joe borrows gold from Bobs Bullion Bank, then sells it on the open market. The lease rate is in effect the interest Joe owes the bank to borrow their gold. But as the bank sees gold going up, it raises its lease rate because it is beginning to see it as a more valuable, rising source of capital. You want to borrow their gold, you gotta pay more cuz everyone is beginning to want it.
If Joe is dating Bobs daughter, he can borrow a oz of gold for 5 years at a locked in rate, and sell it at spot for US$310. If he gets a gold lease rate of 2% per year, it costs him US$6.20 per year interest to do this. He now has US$310 to invest in something. He could buy a futures contract to deliver an oz of gold for a cost of $358.8 on Dec 31 2006,...not sure but maybe that costs him $10, so maybe he can buy 25 contracts for a total of $250 and still have enough money to pay the $6.20 per year interest for 5 years and other other fees he may be charged in completing the transactions (just multiple by the appropriate numbers to fulfill the minimum contract sizes) and still have enough money left over to take Barbie, Bob's daughter out to McDonalds for lunch.
Now as we know from this thread,...gold is going to US$2000 shortly so Joe will make, 25($2000-10-358.8) = US$40780.00 per oz of gold he borrows from Bob and he is out of pocket absolutely nothing to do it and gets a full stomach, and maybe something from Barbie (gggggg)
Now we know Joe will not be satisfied borrowing only one oz from Bob, so he will probably do this with 1000 oz of gold, and he will be a retired multi millionaire as soon as gold hits US$2000, and he will become the biggest goldbug here,...or not (ggggggggggg) |
