There is a conception out there that gold does not earn an income stream. The thinking is, that if someone buys gold and then they place it in a safe deposit bank it just sits there and does not grow any income. That is true if you just let it sit there. But there is a way for your gold to earn an income. It is called Gold Leasing. This is how it works in a quick nutshell from Soberlook:
"A number of European banks hold gold as part of their asset portfolio. They haven?t been eager to sell it as they continue to be concerned about the stability of major currencies, particularly the euro.? They also enjoy the price appreciation gold experienced in recent years. However, they desperately need short-term dollars, so they lease out their gold. In a lease transaction typically a bank turns the gold over to a counterparty for say 3 months and receives gold ?lease rate?. The counterparty in turn places dollars with the bank as collateral on which the bank pays ?LIBOR-like? rate. Now the bank has access to dollars it needs. The demand for dollars has become so great, that banks are willing to accept negative lease rate, just to obtain term (1-12 months) dollars. Therefore negative lease rates is not a surprise."
So, let's say you are a European bank and you need cash quick. You have gold as part of your assets. But you need cash. So, you get your gold to another party and lease it to them for 3 months. In return the bank gets a "lease rate". The other party agrees to put dollars in the bank as collateral for the gold and the bank pays the "lease rate" to borrow the gold. So for 3 months the bank has the dollars it can use for what ever it wants and it has the "lease rate" money to use for what ever it wants. In some cases the lease rate is actually negative. This means at the end of 3 months, the bank gets their gold back and the other party gets their money back plus an additional amount. This additional amount is the negative lease rate amount. Why would a bank agree to a negative lease rate? Well, if they really need cash for that 3 month period, they may just agree to it.
The average investor may think that this stuff is complicated - and it is. However, just keep in mind that these types of complicated financial transactions happen every day. These things affect the price of gold wheter you like it or not. At the end, these things could blow up in the face to those individuals who are not holding the physical gold. It takes time to learn these complicated transactions. But if you don't take the time to learn the understandings of gold and the way the prices go up and down, then you may get caught in the wrong end of the cycle. Or, you could be just an average investor.
capybara duggars peter facinelli bobby rush supreme court justices 19 kids and counting danny o brien
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.