2012/2013 Fiscal Cliff

[Petunia 100]

As I stated earlier I was certain a determined individual could participate in gold leasing.

It appears to be quite simple.


Sell the gold outright, and buy a gold futures contract.

Place the proceeds from the sale in an interest bearing time deposit.

Stand for delivery of gold at maturation of the futures contract.

Pay with the proceeds from the time deposit.

The lease rate as stated is the difference between LIBOR and GOFO .

We all know what LIBOR is.
GOFO stands for Gold Forward Purchase Agreement.
The cost of which is published daily by the LBMA.

What are the costs for doing this? Can gold futures contracts be bought through a brokerage house? What sort of rate can I earn on my time deposit?

And if I do this, I am speculating as to the price at the end of my contract, right? What happens if I am wrong? I have to right more often than wrong to come out ahead, if I am following this correctly.

If this is easy to do, why are you not doing it? This is a serious question.

I don't doubt there is money to be made with this strategy. I don't doubt there are people who can do this successfully. However, I know I am not one of those people. In my opinion, most people are not going to do well with this strategy. It seems to me it would require an excellent grasp of the gold markets and macroeconomics.

[Carpenter]

What you'd be doing is speculating on the future price of gold. What happens if you sell it at $1,500/ounce (or whatever the price is now) and at the end of the futures contract the price is then $1,600/ounce. Then what have you earned through your leasing?
If I own a stock that pays a dividend of $1/share, I get $1/share on an ongoing basis on a predictable schedule. The only time that could change is if the company decides to reduce their dividend. Of course, if things are going well, they could also raise their dividend. Plus, those dividends get reinvested meaning they compound over time as I gradually own more and more shares without adding a penny out of pocket.

A futures contract is an agreement between two parties to buy or sell a specified commodity at some point in the future for a price agreed upon today.

If the price goes to $2000 my contract will be honored at the agreed upon price.

Gold is rarely in backwardation (worth less in the future than the current spot)

The futures price of gold reflects the carry cost plus interest forward.


Edit:
Non standardised contracts known as forwards are regulary traded.
Like a futures contract it involves the exchange of commodities for a specified price.
They are not traded on exchanges, and do not require interim partial payments.

[disneysteve]

As I stated earlier I was certain a determined individual could participate in gold leasing.

It appears to be quite simple.


Sell the gold outright, and buy a gold futures contract.

Place the proceeds from the sale in an interest bearing time deposit.

Stand for delivery of gold at maturation of the futures contract.

Pay with the proceeds from the time deposit.

What you'd be doing is speculating on the future price of gold. What happens if you sell it at $1,500/ounce (or whatever the price is now) and at the end of the futures contract the price is then $1,600/ounce. Then what have you earned through your leasing?

If I own a stock that pays a dividend of $1/share, I get $1/share on an ongoing basis on a predictable schedule. The only time that could change is if the company decides to reduce their dividend. Of course, if things are going well, they could also raise their dividend. Plus, those dividends get reinvested meaning they compound over time as I gradually own more and more shares without adding a penny out of pocket.

[Carpenter]

Probably not possible for the average individual. Large banks with huge gold stockpiles will lease to smaller banks. But, the average person just doesn't have enough gold for anyone to be interested in leasing it.

So you are comparing dividend reinvestment on stocks and mutual funds to leasing of gold.

Then you proceed to admit that you really have no idea how to lease gold. In fact, it may not even be possible for an individual investor like yourself.

As I stated earlier I was certain a determined individual could participate in gold leasing.

It appears to be quite simple.


Sell the gold outright, and buy a gold futures contract.

Place the proceeds from the sale in an interest bearing time deposit.

Stand for delivery of gold at maturation of the futures contract.

Pay with the proceeds from the time deposit.

The lease rate as stated is the difference between LIBOR and GOFO .

We all know what LIBOR is.
GOFO stands for Gold Forward Purchase Agreement.
The cost of which is published daily by the LBMA.

[Carpenter]

Sure there are. We've stated them. If you're worried about the "dollar" going belly up, start stock piling food, potable water, medication, guns, and ammunition.

When someone comes to attack you and steal your food, gold won't stop him. Guns will. And when you go attacking someone else for HIS food, guns would be a lot more useful than gold.

Unless you threw the gold at him and knocked him unconscious. That would be useful I suppose.

So if you're planning on gold seeing you through the next zombie apocalypse, brush up on your shot-putting skills, I suppose?

Come on BB, that kind of talk is reserved for survivalist boards.

I live in the swamp on an oak hammock, and when the wind blows I might get crushed under a falling tree.

What's your point?

[BuckyBadger]

Well, at least there's good humor here. Seems that other than gold, no other ideas for protecting against a dollar devaluation.

Sure there are. We've stated them. If you're worried about the "dollar" going belly up, start stock piling food, potable water, medication, guns, and ammunition.

When someone comes to attack you and steal your food, gold won't stop him. Guns will. And when you go attacking someone else for HIS food, guns would be a lot more useful than gold.

Unless you threw the gold at him and knocked him unconscious. That would be useful I suppose.

So if you're planning on gold seeing you through the next zombie apocalypse, brush up on your shot-putting skills, I suppose?

[bjl584]

Then you proceed to admit that you really have no idea how to lease gold. In fact, it may not even be possible for an individual investor like yourself.

Probably not possible for the average individual. Large banks with huge gold stockpiles will lease to smaller banks. But, the average person just doesn't have enough gold for anyone to be interested in leasing it.

[disneysteve]

Since we are allowing for the reinvestment of proceeds, I choose to lease my gold.

A review of historical records reveal lease rates as high as 7%.

I have never participated in, nor am I certain how to go about leasing metals.

So you are comparing dividend reinvestment on stocks and mutual funds to leasing of gold.

Then you proceed to admit that you really have no idea how to lease gold. In fact, it may not even be possible for an individual investor like yourself.

I know exactly how to reinvest my dividends. In fact, it is done automatically within my portfolio. I don't need to do a thing, and it is something every single investor can do at no cost at all. (Yes, there are some brokerages that charge for the service but most don't and there is no reason to use one that does.)

So I think that clearly makes your comments about leasing irrelevant to the investment value of gold while the value of reinvesting dividends is extremely relevant to investing in stocks.

[dontgopoor]

Well, at least there's good humor here. Seems that other than gold, no other ideas for protecting against a dollar devaluation.

[Petunia 100]

All things are possible.
In January 2005 the Zimbabwe Industrial Index was trading at at 1420 points.
By 2008 it had risen to 5,418,000,000,000.

Lol, I guess I should be careful what I wish for.

[Carpenter]

In my opinion, your main points have been illogical.

First, you compare the performance of gold to the performance of the S & P, ignoring dividends.

When that is pointed out, you say you knew someone would pull dividends out of their....hat (seeming to imply dividends are irrelevant), but that you hadn't even included income from leasing your gold.

When people inquire how one goes about leasing their gold, you don't really know and have never done it. Well, if it can't actually be done by the little guy, then it's completely irrelevant.

I might make a similar argument that if I could sell 1k of my stocks for 10 billion dollars, that would be an awesome return on my money. Of course, I can't find a buyer willing to pay 10 billion. Nonetheless, that transaction beats the pants off gold, therefore stocks are the better investment.

All things are possible.
In January 2005 the Zimbabwe Industrial Index was trading at at 1420 points.
By 2008 it had risen to 5,418,000,000,000.

[Carpenter]

Not directed at you, Carpenter. I just love the quote.

Thanks.

[Carpenter]

Never try to teach a pig to sing. It wastes your time, and it annoys the pig.

Thanks for the advice Wino, as your frustrated voice coach, I will refrain from annoying you further.

[Petunia 100]

Et tu, Petunia?

Not directed at you, Carpenter. I just love the quote.

[Petunia 100]

I don't think I've presented anything here that even borders on fanatical.

In my opinion, your main points have been illogical.

First, you compare the performance of gold to the performance of the S & P, ignoring dividends.

When that is pointed out, you say you knew someone would pull dividends out of their....hat (seeming to imply dividends are irrelevant), but that you hadn't even included income from leasing your gold.

When people inquire how one goes about leasing their gold, you don't really know and have never done it. Well, if it can't actually be done by the little guy, then it's completely irrelevant.

I might make a similar argument that if I could sell 1k of my stocks for 10 billion dollars, that would be an awesome return on my money. Of course, I can't find a buyer willing to pay 10 billion. Nonetheless, that transaction beats the pants off gold, therefore stocks are the better investment.