Tom McClellan put forward a hypothesis today on Bloomberg TV that the spread between gold lease rates and LIBOR has been extraordinarily wide, and therefore it has been difficult to short gold. This sustained gold at an unusually high price. But now it is correcting so gold will fall much more in price as the shorts pile in.
I cannot speak to LIBOR, but the gold lease rates have hardly been unusually expensive of late. There is a theory that gold lease rates are the difference between LIBOR and gold swaps.
What these charts imply to me is that someone dumped physical gold into the paper markets, with the emphasis on 'dumped.' The same thing happened to a lesser extent on Dec. 8 to silver.
I also include the six month trend on lease rates for your review.
If this is true, then the same should apply to silver. Does it? I think that mixing paper and metal interchangeably does not necessarily work as well as it does with other paper currencies.
