• "Spreading the ideas of freedom loving people on matters regarding high finance, politics, constructionist Constitution, and mental masturbation of all types"

All about interest bearing gold!

Joined
Jun 25, 2020
Messages
67
Likes
166
#1
I did a search and didn't find anything on this subject so forgive me if it has already been covered.

At least two companies that I know offer interest on gold in gold. The appeal here is that usually gold costs money to vault or you have it hidden somewhere. By putting it to work you can make 2% - 4% depending on how much risk you want to take on.

Monetary metals (Keith Weiner) has a company that specializes in interest bearing gold. I haven't given him my money personally but one of my companies has been using him for awhile to make interest on gold.

I've got 25 ounces that are making 2% annually right now in another private offering. Under securities laws I can't advertise it publicly but it is basically an inventory investment that isn't put at risk.

Is anyone else putting their gold to work this way or in another way?

There is another company that I am aware of that is working on doing low interest loans with the gold as collateral. This may deserve another post though when they get closer.

Cheers.
 

Strawboss

Apocaloptimist
Site Mgr
Midas Member
Site Supporter ++
Joined
Mar 31, 2010
Messages
8,275
Likes
16,249
#2
So I give up the gold and in return get 2% interest? Is that the gist?
 
Joined
Jun 25, 2020
Messages
67
Likes
166
#3
So I give up the gold and in return get 2% interest? Is that the gist?
The gold becomes a debt that you are entitled to at the end of the term of the contract. In the meantime the gold is held as gold inventory for a precious metals company that is selling it and would rather lease inventory than own it. I'm aware of a few precious metals companies that lease metal in this way. One of the companies that I am affiliated with has been doing this for about 7 years now.

The trouble with interest bearing gold is that no one wants to have a debt denominated in gold. Also, no one with gold wants to put it at high risk (the gold is sold and invested in a venture, then the venture fails or the gold becomes to valuable to pay back). Only a fool would want to have a debt in gold coins.

This is why I think that the inventory investments are the most common type of interest bearing gold. The gold never really leaves, it just need to exist on someone else's books and they pay you for it. If gold goes up in price then it is still in the safe.

Outside of a couple of private offerings and Monetary Metals I am not sure if anyone else does this kind of thing. Being in the precious metals space myself I am aware of some of these more obscure deals. Thought it would be fun to post here.

There is a Ponzi scheme that happened out of Utah where a coin store had a silver fund and promised massive annual returns on silver because "they knew when to buy and sell". You have to be careful who you work with. If someone promises something that is too good to be true then is usually is.
 

Strawboss

Apocaloptimist
Site Mgr
Midas Member
Site Supporter ++
Joined
Mar 31, 2010
Messages
8,275
Likes
16,249
#4
I cant imagine any company having much success trying to convince gold bugs to let go of their gold in exchange for clownbux...

But - I have been wrong before...
 

specsaregood

Silver Member
Silver Miner
Joined
Mar 31, 2010
Messages
1,111
Likes
1,189
#5
I've got 25 ounces that are making 2% annually right now in another private offering. Under securities laws I can't advertise it publicly but it is basically an inventory investment that isn't put at risk.
If you don't hold it; then it is put at risk.
 

Voodoo

Gold Member
Gold Chaser
Site Supporter
Joined
Mar 31, 2010
Messages
1,724
Likes
2,168
Location
Deep Underground Bunker
#6
If you don't hold it; then it is put at risk.
The only way I see for any interest is to be loaning the gold out. Kinda like the old days of putting money in a bank and getting some interest. Instead you are going further back and putting gold in the "bank" and getting some interest in gold back. They aren't sitting on the gold but have to be putting it "at risk".
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#7
I did a search and didn't find anything on this subject so forgive me if it has already been covered.

At least two companies that I know offer interest on gold in gold. The appeal here is that usually gold costs money to vault or you have it hidden somewhere. By putting it to work you can make 2% - 4% depending on how much risk you want to take on.

Monetary metals (Keith Weiner) has a company that specializes in interest bearing gold. I haven't given him my money personally but one of my companies has been using him for awhile to make interest on gold.

I've got 25 ounces that are making 2% annually right now in another private offering. Under securities laws I can't advertise it publicly but it is basically an inventory investment that isn't put at risk.

Is anyone else putting their gold to work this way or in another way?

There is another company that I am aware of that is working on doing low interest loans with the gold as collateral. This may deserve another post though when they get closer.

Cheers.
I've looked at Monetary Metals before. At least in principal it's a pretty good model. Monetary metals will lease gold only to businesses which actually use the gold as part of their business, for example a jewellery manufacturer. They will not lease it to anyone for speculation / trading / gambling etc.

Let's say the jewellery manufacturer takes 2 months to make and sell a piece of jewellery (I just made that up), and are able to sell the jewellery for 10% over spot (I made that up too). For them gold leasing reduces the risk of their business. They don't want to be exposed to gold price movements; they just want to make their 10% - so they are happy to pay say 0.5% to the gold owner to borrow his gold while they make the jewellery and wait for it to sell. When they sell the jewellery they immediately repay the lease. And because they are holding the gold for the entire term of the lease the risk of them defaulting on the lease is much lower than someone who is leasing the gold in order to sell it short for speculation.

From the web-site it appears that the lessor retains ownership of the gold while it is in the jeweller's possession, so it should be recoverable even if the jeweller goes bankrupt - although I've no idea how courts might behave under such circumstances.
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#8
The only way I see for any interest is to be loaning the gold out. Kinda like the old days of putting money in a bank and getting some interest. Instead you are going further back and putting gold in the "bank" and getting some interest in gold back. They aren't sitting on the gold but have to be putting it "at risk".
It doesn't have to be "at risk" - at least not in the way that I think you are implying. Obviously any gold (even when it is in your actual possession) is at some risk of being stolen - and lending it out (as opposed to burying it and making a treasure map) probably increases that risk. But it doesn't have to be at risk in the event of someone's bankruptcy.
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#9
The gold becomes a debt that you are entitled to at the end of the term of the contract.
I hope this is not the case, because that would be risky.

You do not want the gold to be a debt in this type of arrangement. You want the gold to remain the property of the lessor and the lessee to be renting it.
 

Varmint Hunter

Gold Member
Gold Chaser
Midas Supporter ++
Joined
Apr 10, 2010
Messages
2,043
Likes
7,294
#10
IMHO Loaning your gold out for a few measly percents defeats the most important reason for owning it in the first place.
 
Joined
Jun 25, 2020
Messages
67
Likes
166
#11
IMHO Loaning your gold out for a few measly percents defeats the most important reason for owning it in the first place.
Yeah... but what if you have a LOT of gold? Like say 2,000 ounces? Surely the first 500 ounces covers your rear. If you can make 2% on the rest then that is 30 ounces a year in interest. You can live on that.
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#12
IMHO Loaning your gold out for a few measly percents defeats the most important reason for owning it in the first place.
You could look at it that way, or you could look at it differently and decide that it provides another, different reason to own gold.

I agree that leasing gold out is less safe than owning a secret stash and treasure map, and does not serve the purpose of someone who wishes to preserve his wealth as safely and securely as possible.

However suppose I want some income, strong asset backing, and protection from inflation. This might be rather a good way of achieving that goal.

Let's say I can get 9% lending money to fix n flip builders secured by real estate. Or I could get 4% leasing gold to a jeweller. Which is better?

I think it depends on how strong the claim to the gold actually turns out to be in practice. How easy would it be to get your gold back if it turned out that the jeweller or the coin dealer sold it to someone else and didn't pay you back immediately with the proceeds? For real estate there is a really strong system of ensuring that the mortgage holder's claim gets enforced - not so sure about the gold lessor.
 

Varmint Hunter

Gold Member
Gold Chaser
Midas Supporter ++
Joined
Apr 10, 2010
Messages
2,043
Likes
7,294
#13
If your gold is leased out at the time of a real serious SHTF situation, kiss it goodby, as you will most likely never see it again.
If income is needed, use other assets in a scenario like the 9% fix n flip that RY suggests above. My 2c.
 

Casey Jones

Silver Member
Silver Miner
Joined
Apr 4, 2020
Messages
936
Likes
1,340
Location
Western Montana
#14
The gold becomes a debt that you are entitled to at the end of the term of the contract. In the meantime the gold is held as gold inventory for a precious metals company that is selling it and would rather lease inventory than own it. I'm aware of a few precious metals companies that lease metal in this way. One of the companies that I am affiliated with has been doing this for about 7 years now.

The trouble with interest bearing gold is that no one wants to have a debt denominated in gold. Also, no one with gold wants to put it at high risk (the gold is sold and invested in a venture, then the venture fails or the gold becomes to valuable to pay back). Only a fool would want to have a debt in gold coins.

This is why I think that the inventory investments are the most common type of interest bearing gold. The gold never really leaves, it just need to exist on someone else's books and they pay you for it. If gold goes up in price then it is still in the safe.

Outside of a couple of private offerings and Monetary Metals I am not sure if anyone else does this kind of thing. Being in the precious metals space myself I am aware of some of these more obscure deals. Thought it would be fun to post here.

There is a Ponzi scheme that happened out of Utah where a coin store had a silver fund and promised massive annual returns on silver because "they knew when to buy and sell". You have to be careful who you work with. If someone promises something that is too good to be true then is usually is.
It sounds like a gold-leasing scheme.

Gold, most of us know, is leased for gold short-sellers. When they're called to settle, they settle with the gold they lease from you - and then, they settle with you, in...yup, fiat.

They pocket the arbitrage and you get the fiat-payment on the day the gold was sold. Oh, and a few percentage points up to that...

Doesn't sound like a winning plan. If you don't hold it in your hand; if your gold isn't secured with a lock that you have the key to, and access to...then, it's not yours.
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#15
It sounds like a gold-leasing scheme.

Gold, most of us know, is leased for gold short-sellers. When they're called to settle, they settle with the gold they lease from you - and then, they settle with you, in...yup, fiat.

They pocket the arbitrage and you get the fiat-payment on the day the gold was sold. Oh, and a few percentage points up to that...

Doesn't sound like a winning plan. If you don't hold it in your hand; if your gold isn't secured with a lock that you have the key to, and access to...then, it's not yours.
It's certainly not the same as owning physical gold in your own possession. And I think there are lost of details to understand before determining exactly how safe the gold leasing being proposed is or isn't - but it is not simply being loaned to naked short sellers which I agree would be very risky.
 
Last edited:

Ragnarok

I'd rather be
Midas Member
Midas Supporter ++
Joined
Mar 31, 2010
Messages
5,725
Likes
4,651
#16
The problem with interest paid in physical gold, is that the gold has to come from somewhere, it can‘t just be printed or loaned into existence, and eventually no matter how low the interest rate one day there won’t be enough gold to pay the interest.
How long would a scheme like that last until the terms are changed to interest in paper gold or other not-really-gold sources?

2c,
R.
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#17
The problem with interest paid in physical gold, is that the gold has to come from somewhere, it can‘t just be printed or loaned into existence, and eventually no matter how low the interest rate one day there won’t be enough gold to pay the interest.
How long would a scheme like that last until the terms are changed to interest in paper gold or other not-really-gold sources?

2c,
R.
Lease rates tend to reflect the direction of the gold price. When the price is falling, lease demand is high and rates rise. When the price starts rising, lease demand falls and rates drop. If a leasing scheme went on for so many millenia that that one individual had accumulated a large percentage of the world's gold then the scheme itself would cause the price to begin to rise rapidly thus lowering the lease rate.

It's perfectly possible that the lease rate would change in such a way that the series sum reached a limit - in the same way that 1/2 + 1/4 + 1/8 + 1/16 + 1/32 + ... never ever reaches 1.
 
Last edited:

ttazzman

Midas Member
Midas Member
Midas Supporter
Joined
Apr 2, 2010
Messages
6,045
Likes
6,801
Location
mid-usa
#18
wealth is easier to acquire than it is to hold on too......there will always be schemes to separate people from their wealth in exchange for paper promises ........it always works till it doesn't.....kinda like musical chairs .....

as a side note the example of leasing gold to make jewelry really makes no sense at all....it would be cheaper for the jeweler to just borrow cash at interest and buy the gold for production then repay the loan upon sale

the only reason i can see for a party to lease gold is because the party owes physical metal that is expensive to obtain to another party ...or a party is playing the market in hopes of lower future prices ...

just my opinions
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#19
wealth is easier to acquire than it is to hold on too......there will always be schemes to separate people from their wealth in exchange for paper promises ........it always works till it doesn't.....kinda like musical chairs .....
All investments carry some risk of loss. This is an investment and carries some risk of loss. It is not the same as saving, where the risk of loss is much smaller and basically limited to theft.

as a side note the example of leasing gold to make jewelry really makes no sense at all....it would be cheaper for the jeweler to just borrow cash at interest and buy the gold for production then repay the loan upon sale

the only reason i can see for a party to lease gold is because the party owes physical metal that is expensive to obtain to another party ...or a party is playing the market in hopes of lower future prices ...

just my opinions
The jeweller doesn't want to be exposed to the price movement of the gold. If he borrowed cash, and the price of gold moved against him, then he could actually lose money when he sold the piece. It's true that he could also make extra money if the price of gold moved in his favor, but in general he wants his business to be predictable and he wants to get reliably paid every month for turning gold into jewellery rather than sometimes making a lot of money and sometimes losing money.

He could sell gold futures and use the proceeds to buy the gold he intends to work on and roll the futures over as required. And that would be the same as leasing gold provided the paper price and physical price remained in sync. Or he could lease gold which is even safer for him.
 

Strawboss

Apocaloptimist
Site Mgr
Midas Member
Site Supporter ++
Joined
Mar 31, 2010
Messages
8,275
Likes
16,249
#20
All investments carry some risk of loss. This is an investment and carries some risk of loss. It is not the same as saving, where the risk of loss is much smaller and basically limited to theft.



The jeweller doesn't want to be exposed to the price movement of the gold. If he borrowed cash, and the price of gold moved against him, then he could actually lose money when he sold the piece. It's true that he could also make extra money if the price of gold moved in his favor, but in general he wants his business to be predictable and he wants to get reliably paid every month for turning gold into jewellery rather than sometimes making a lot of money and sometimes losing money.

He could sell gold futures and use the proceeds to buy the gold he intends to work on and roll the futures over as required. And that would be the same as leasing gold provided the paper price and physical price remained in sync. Or he could lease gold which is even safer for him.
That is what the futures market is for...to hedge risk. Every jeweler of size uses the futures market...
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#21
That is what the futures market is for...to hedge risk. Every jeweler of size uses the futures market...
Well except the ones that use the leasing market. Miners also use leases as well as futures. Most of the central bank gold leases that used to exist in such volume were actually to miners.

The price behavior of leases and futures is very similar, but there are some differences in risks and accounting treatment.

And it's worth noting that arbitrage occurs between the futures markets and lease rates - because they are sufficiently similar that under most circumstances they can be considered the same thing.
 
Last edited:

ttazzman

Midas Member
Midas Member
Midas Supporter
Joined
Apr 2, 2010
Messages
6,045
Likes
6,801
Location
mid-usa
#22
Well except the ones that use the leasing market. Miners also use leases as well as futures. Most of the central bank gold leases that used to exist in such volume were actually to miners.

The price behavior of leases and futures is very similar, but there are some differences in risks and accounting treatment.

And it's worth noting that arbitrage occurs between the futures markets and lease rates - because they are sufficiently similar that under most circumstances they can be considered the same thing.
please help me understand leasing ....this is my KISS understanding of it...

i give you 1oz of gold on day one
you give me back 1oz gold day 30 plus intrest?

how in the world does that protect anyone from the price of gold changing?
 

Strawboss

Apocaloptimist
Site Mgr
Midas Member
Site Supporter ++
Joined
Mar 31, 2010
Messages
8,275
Likes
16,249
#23
please help me understand leasing ....this is my KISS understanding of it...

i give you 1oz of gold on day one
you give me back 1oz gold day 30 plus intrest?

how in the world does that protect anyone from the price of gold changing?
In normal times - yes - that is the jist of how it works...

In abnormal times - the question is...when the music stops - who has physical possession of the gold...
 

smooth

Gold Member
Gold Chaser
Site Supporter ++
Joined
Mar 31, 2010
Messages
3,058
Likes
5,917
#25
Will they take Silbur? Asking for a friend...
 
Joined
Jun 25, 2020
Messages
67
Likes
166
#26
All investments carry some risk of loss. This is an investment and carries some risk of loss. It is not the same as saving, where the risk of loss is much smaller and basically limited to theft.



The jeweller doesn't want to be exposed to the price movement of the gold. If he borrowed cash, and the price of gold moved against him, then he could actually lose money when he sold the piece. It's true that he could also make extra money if the price of gold moved in his favor, but in general he wants his business to be predictable and he wants to get reliably paid every month for turning gold into jewellery rather than sometimes making a lot of money and sometimes losing money.
You caught they 'why' that I tried to convey very well here. This is the essence of why a gold lease makes sense. When the gold is an inventory investment that cycles all the time then this works well. We did this type of lease for some of the Goldbacks produced.
 

ttazzman

Midas Member
Midas Member
Midas Supporter
Joined
Apr 2, 2010
Messages
6,045
Likes
6,801
Location
mid-usa
#27
You caught they 'why' that I tried to convey very well here. This is the essence of why a gold lease makes sense. When the gold is an inventory investment that cycles all the time then this works well. We did this type of lease for some of the Goldbacks produced.
still doesn't make sense to me unless your under-capitalized......if your a gold consumer...you have two choices as i see it.....buy gold...or borrow(lease) gold....the gold you borrow you have to pay back in full plus the "vig" .......the "vig" is a added cost of doing business that only cuts into your profit margins

if your under-capitalized the other option it seems would be to borrow cash and buy gold .....at very attractive intrest rates ......you could even use the gold(inventory) as your collateral for the loan

in any case a rule of business is adequate profits will cure under-capitalization so the ongoing need to "borrow" for materials should go away unless the business model is flawed..being under-capitalized is in of itself a start up business flaw in my opinion
 

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#28
still doesn't make sense to me unless your under-capitalized......if your a gold consumer...you have two choices as i see it.....buy gold...or borrow(lease) gold....the gold you borrow you have to pay back in full plus the "vig" .......the "vig" is a added cost of doing business that only cuts into your profit margins

if your under-capitalized the other option it seems would be to borrow cash and buy gold .....at very attractive intrest rates ......you could even use the gold(inventory) as your collateral for the loan

in any case a rule of business is adequate profits will cure under-capitalization so the ongoing need to "borrow" for materials should go away unless the business model is flawed..being under-capitalized is in of itself a start up business flaw in my opinion
Think about it this way. Imagine you are a jeweller (or any other business that processes gold). Your business works like this:

1. You buy gold. You pay a price SP - PD (Spot on the day of purchase - purchase delta). For a jeweller PD may be zero as he is likely buying gold on the market at spot. For a miner who has bought reserves in the ground which he needs to dig up, PD might be quite substantial.
2. You process the gold in order to make it worth more. In the case of the jeweller you turn it into a piece or jewellery; in the case of the miner yuo dig it up and concentrate it.
3. You sell the processed gold at a price SS + SD (Spot on the day of sale + sale delta). For a jeweller SD could be quite high (assuming he makes beautiful jewellery), and for a miner it is probably close to zero since he will selling his gold on the open market at close to spot.

Your profit is therefore (SS - SP) + (SD - PD), or - in words: (the difference in the spot prices on the sale date and purchase date) + (the value added by the processing).

Since you are a jeweller you want to get reliably paid for the value you are adding each month and you would rather not deal with the risk of spot price movements which, while they might well even out or even be profitable over a long period of time, would leave you with very tricky cash flow management problems in the short term. Would you rather have a business which paid $14,850 every month or one which could lose $5K a month for two years before paying you $35K a month for the next two?

So the jeweller can eliminate the risk of price movement by borrowing the gold from a leaser and paying a small leasing fee (LF) to do so. Then his profit is just (SD - PD) - LF (the value add - the leasing fee). He is protected from moves in the price of gold because he has borrowed the gold instead of purchasing it. If the price rises he must return gold to the lender at the higher price so he does not make any extra profit, but if the price falls he returns gold to the lender at the lower price so he does not make a loss.

Yes the mechanics in terms of profit and loss work the same as borrowing money to buy the gold and hedging the price with a paper futures contract. But the legal situation, risks and accounting treatment are all slightly different.
 
Last edited:

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#29
Note I'm NOT recommending this as a good investment. I'm just explaining how it works.

My view is that in principle it is NOT as bad an idea as it is often thought to be, but before deciding to make any investment like this I would need to understand in a great deal more detail
(i) exactly how you would get access to the gold in the event that the lessee defaults and/or goes bankrupt
(ii) what legal rights you would have to the gold if it turns out he had sold it to someone else
(iii) the process, practicality, chance of success, and cost of enforcing those rights.
(iv) exactly what happens, and in what order it happens, to the physical gold at the time the lessee sells it, and whether there is any period of time when there is no physical gold which secures your loan.
 

ttazzman

Midas Member
Midas Member
Midas Supporter
Joined
Apr 2, 2010
Messages
6,045
Likes
6,801
Location
mid-usa
#30
Think about it this way. Imagine you are a jeweller (or any other business that processes gold). Your business works like this:

1. You buy gold. You pay a price SP - PD (Spot on the day of purchase - purchase delta). For a jeweller PD may be zero as he is likely buying gold on the market. For a miner who has bought reserves in the ground which he needs to dig up, PD might be quite substantial.
2. You process the gold in order to make it worth more.
3. You sell the processed gold at a price SS + SD (Spot on the day of sale + sale delta). For a jeweller SD could be quite high (assuming he makes beautiful jewellery), and for a miner it is probably close to zero since he will selling his gold on the open market.

Your profit is therefore (SS - SP) + (SD - PD), or - in words: (the difference in the spot prices on the sale date and purchase date) + (the value added by the processing).

Since you are a jeweller you want to get reliably paid for the value you are adding each month and you would rather not deal with the risk of spot price movements which, while they might well even out or even be profitable over a long period of time, would leave you with very tricky cash flow management problems in the short term. Would you rather have a business which paid $14,850 every month or one which could lose $5K a month for two years before paying you $35K a month for the next two?

So the jeweller can eliminate the risk of price movement by borrowing the gold from a leaser and paying a small leasing fee (LF) to do so. Then his profit is just (SD - PD) - LF (the value add - the leasing fee). He is protected from moves in the price of gold because he has borrowed the gold instead of purchasing it. If the price rises he must return gold to the lender at the higher price so he does not make any extra profit, but if the price falls he returns gold to the lender at the lower price so he does not make a loss.

Yes the mechanics in terms of profit and loss work the same as borrowing money to buy the gold and hedging the price with a paper futures contract. But the legal situation, risks and accounting treatment are all slightly different.
further interpretation of my thoughts

#1 for the cost of the "vig" he can use metal he doesn't own and thus move his expense cash flow outlay to the same period as he is receiving sales revenues (over all expenses would be increased by the cost of the vig) <<<< this is the cash flow problem that can be cured many other ways

#2 i can see some form of price protection in the case where the underlieing metal (gold) value goes down in cost during product production period ....but no gain or protection if the underlieing metal rises in cost during production...<<<i have moved your way a bit on #2

am i missing something?

i fully agree with the issues in your #29 post...as you said we are discussing the mechanics not the suitability of the process
 
Last edited:

RebelYell

Seeker
Seeker
Joined
Apr 2, 2010
Messages
224
Likes
199
#31
further interpretation of my thoughts

#1 for the cost of the "vig" he can use metal he doesnt own and thus move his expense cash flow outlay to the same period as he is receiving sales revenues (over all expenses would be increased by the cost of the vig) <<<< this is the cash flow problem that can be cured many other ways
I actually hadn't intended to discuss this aspect too. But yes it also has the effect of being a working capital loan. And if you view the gold price change protection as a positive and worth paying for by itself, then this will turn out to be a very cheap working capital loan.

#2 i can see some form of price protection in the case where the underlieing metal (gold) value goes down in cost during product production ....but no gain or protection if the underlieing metal rises in cost during production...<<<i have moved your way a bit on #2

am i missing something?
No you're not missing anything. He doesn't lose if the metal goes down. But you are correct that he also loses the chance to win if it goes up. He's basically paying a small fee to de-risk his business by removing changes in the price of gold (good changes as well as bad changes) from his profit and loss so he just gets paid for the work he does to create jewellery. It basically ensures he gets a steady profit every month instead of a loss when the gold price declines and an extra large profit when it rises.

i fully agree with the issues in your #29 post...as you said we are discussing the mechanics not the suitability of the process
Yep. When I looked into this a little bit I concluded that
- it was more interesting than I had initially thought
- at that time lease rates were very low (and I believe they are again now), so I concluded that it still wasn't interesting enough to spend the necessary time really digging into the actual process with a potential fund manager and answering the questions I had in #29.
 
Last edited: