With concerns about liquidity and solvency in the European banking system, there is lending and possibly even selling of gold by banks to raise much needed cash. This may be creating short term weakness in gold bit is bullish for gold in the long term.
The FT reported last week that “gold dealers” said that banks – “primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars.”
The key question is who is lending and is their lending simply liquidity driven - to raise dollars or euros?
John Dizard, who frequently comments on gold in the Financial Times wrote on Saturday that,
“Gold market people say European commercial banks are being driven to lend gold for dollars at negative interest rates just to raise some extra cash for a few weeks.
There’s not a lot of transparency about where the banks are getting the gold they are lending out, but it could be lent to them by either their national central banks, or by gold exchange traded funds.”