Title: On the lease rate, convenience yield and speculative effects in the gold futures market

Authors: Giovanni Barone-Adesi; Helyette Geman; John Theal

Addresses: Swiss Finance Institute, University of Lugano, Lugano, Switzerland ' Commodity Finance Centre, Birkbeck - University of London & Johns Hopkins University, London, UK ' Financial Stability and Prudential Supervision Unit, Central Bank of Luxembourg, Luxembourg, Luxembourg

Abstract: By examining data on the Gold Forward Offered Rate (GOFO) and lease rates, we conclude that the convenience yield of gold is better approximated by the lease rate than the interest adjusted spread. Using the former quantity, we study the relationship between gold leasing and the level of COMEX discretionary inventory and show that lease rates are negatively related to inventories. We also show that futures prices have increasingly exceeded forward prices over the period, and this effect increases with the speculative pressure and the maturity of the contracts.

Keywords: gold futures; speculative pressure; convenience yield; gold leasing; lease rates; COMEX discretionary inventory.

DOI: 10.1504/IJFERM.2014.058766

International Journal of Financial Engineering and Risk Management, 2014 Vol.1 No.3, pp.282 - 307

Received: 21 Nov 2012
Accepted: 26 Jul 2013
Published online: 21 Oct 2014 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article