Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

Author Info

  • Giovanni BARONE-ADESI

    (University of Lugano and Swiss Finance Institute)

  • Helyette GEMAN

    (Birkbeck College, University of London, London, England)

  • John THEAL

    (University of Lausanne and Swiss Finance Institute)

Registered author(s):

    Abstract

    By examining the gold leasing market and employing data on the gold forward offered rate (GOFO) and derived lease rates, we propose that rather than using the interest-adjusted basis as a proxy for the convenience yield of gold, the convenience yield is better approximated by the derived gold lease rate. Additionally, using the interest-adjusted basis as opposed to the lease rate can lead to incorrect inferences pertaining to the convenience yield. Using the lease rate, we study the relationship between gold leasing and the level of COMEX discretionary inventory. The results suggest that the lease rate has an asymmetric relationship with the level of discretionary inventory, which we calculate using weekly inventory data obtained from the COMEX futures trading exchange. Linear regressions of the level of discretionary inventory on lagged lease rates reveals that, for short-duration gold leases, bullion repayments result in decreased inventory levels. After controlling for speculative effects, we show that only leases of one month maturity have a statistically significant effect on inventory levels, and thus conclude that speculative pressure acts to increase the amount of bullion available to the gold futures market by decreasing the repayment effect. Finally, we show that the presence of speculation in gold futures contracts can be associated with increased futures contract returns and that this effect increases with increased futures contract maturity. These results suggest that speculation plays a significant role in the COMEX gold futures market.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://ssrn.com/abstract=1365180
    Download Restriction: no

    File URL:
    Download Restriction: no

    Bibliographic Info

    Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 09-07.

    as in new window
    Length: 64 pages
    Date of creation: Mar 2009
    Date of revision:
    Handle: RePEc:chf:rpseri:rp0907

    Contact details of provider:
    Web page: http://www.SwissFinanceInstitute.ch
    More information through EDIRC

    Related research

    Keywords: central bank; commitments of traders; commodity market; convenience yield; gold futures; gold leasing; speculation;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp0907. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marilyn Barja).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.