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Gold Borrowing Costs Drop as Forward Rates Turn Positive

Sept. 2 (Bloomberg) -- Gold forward offered rates turned positive for the first time in eight weeks in London, lowering one-month bullion borrowing costs to an almost two-month low.

The one-month gold forward offered rate, which shows the interest rate at which dealers will lend metal for dollars, was at 0.00167 percent today after remaining negative since July 8, data compiled by Bloomberg show. The one-month lease rate fell to 0.1809 percent, the least since July 5.

Gold, down 17 percent this year after some investors lost faith in the metal as a store of value, advanced 18 percent from a 34-month low in June as lower prices boosted demand for jewelry, bars and coins in Asia. More physical purchases helped drive borrowing costs to the highest in more than four years in August, pushing U.S. gold futures into backwardation. An increase in gold liquidity supply can push lease rates lower, according to the London Bullion Market Association.

“When lease rates are spiking, it shows quite strong appetite for borrowing gold,” Dan Smith, an analyst at Standard Chartered Plc in London, said today by phone. “The lease rates are still relatively high. But physical appetite has eased back a bit on these high numbers.”

Gold for immediate delivery traded at $1,390.18 an ounce by 12:53 p.m. in London. Prices reached a three-month high of $1,433.83 on Aug. 28 amid concern the U.S. will take military action against Syria. U.S. President Barack Obama said on Aug. 31 he will ask members of Congress to back his plan for a military strike on Syria.

Monthly Gain

Bullion capped a second successive monthly advance in August after lower prices boosted demand. Consumer buying in India, last year’s biggest buyer, and China pushed global bar and coin sales to a record and jewelry usage to the most since 2008 in the second quarter, according to the London-based World Gold Council.

Consumption is being restricted in India, where the government has sought to curb bullion imports by raising taxes and costs to combat a record current-account deficit. The country’s commodity markets regulator ordered exchanges to raise margins on gold futures, effective today, after domestic prices rallied to an all-time high.

The August futures contract on the Comex in New York flipped to a premium to December last month for the first time since they started trading. The August contract was at a 20-cent premium on Aug. 28 and the September contract was 40 cents above the December price today.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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