On the Lease Rate, Convenience Yield and Speculative Effects in the Gold Futures Market

36 Pages Posted: 21 Mar 2009 Last revised: 6 Sep 2010

See all articles by Giovanni Barone-Adesi

Giovanni Barone-Adesi

University of Lugano; Swiss Finance Institute

Hélyette Geman

University of London - Economics, Mathematics and Statistics

John Theal

Banque Centrale du Luxembourg

Date Written: August 6, 2010

Abstract

By examining data on the gold forward offered rate (GOFO) and lease rates over the period 1996- 2009, we conclude that the convenience yield of gold is better approximated by the lease rate than the interest-adjusted spread of Fama & French (1983). Using the latter quantity, we study the relationship between gold leasing and the level of COMEX discretionary inventory and exhibit 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 market, convenience yield, gold lease rate, speculative pressure

JEL Classification: C22, E44, G15

Suggested Citation

Barone-Adesi, Giovanni and Geman, Helyette and Theal, John, On the Lease Rate, Convenience Yield and Speculative Effects in the Gold Futures Market (August 6, 2010). Swiss Finance Institute Research Paper No. 09-07. Available at SSRN: https://ssrn.com/abstract=1365180 or http://dx.doi.org/10.2139/ssrn.1365180

Giovanni Barone-Adesi

University of Lugano ( email )

Via Buffi 13
CH-6904 Lugano
Switzerland
+41 58 666 4671 (Phone)
+41 58 666 46 47 (Fax)

Swiss Finance Institute

c/o University of Geneva
40 Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Helyette Geman

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom

John Theal (Contact Author)

Banque Centrale du Luxembourg ( email )

2 Boulevard Royal
Luxemburg, L-2983
Luxembourg

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