When Central banks lend gold, the gold does not move. The ownership changes to allow different organizations to benefit from price changes. Leasing gold is a way to protect value in other accounts. It is a practical way for governments to profit from manipulating commodity prices.
If I lease gold for six months, at the end of the term, I must repay the gold. If the price of gold has dropped then I have realized a gain. Conversely if the price has gone up, I will have realized a loss.
The bank’s position is opposite. The bank who lends the gold to me gains as prices rise. Banks lose as prices fall.
Consider it situation if the term of the lease is flexible. As time goes by, the borrower must ‘pay rent’ on the gold. The cost of borrowing increases as prices increase. The profit for the bank increases as well.
Who would (can) borrow gold from central banks? Why would they do so?
The gold holdings of the US and the Bank of England have not been audited in recent history. The answers to these questions are hidden.
As a government, we citizens are kept in the dark. I am uncomfortable with this!
Here is today’s beauty.