Gold deposit rates - a guidance paper

As a highly liquid asset with pro- and countercyclical properties, gold is widely recognised as a store of value. As such, it can help central banks meet their core objectives of safety, liquidity and return. Nonetheless, there is one pervasive concern about gold as an investment asset: that it does not offer any yield. This is a misconception. Among central banks, gold can be actively managed to generate additional returns, in two key ways. They can lend out their gold reserves and earn the gold deposit rate.1 They can also swap their gold for dollars at the gold offered forward rate (GOFO) or swap rate.

We then compiled a list of potential drivers and tested their impact on both the 3-month and 12-month gold lease rates. We found that, while gold lease rates often take random and unpredictable paths in normal times,3 certain key drivers have been instrumental in explaining the causes behind gold lease rates’ decline in recent years. These drivers also explain the spikes that have been observed in gold lease rates and allow us to determine that, if similar market conditions were to manifest again in the future, similar reactions in gold lease rates could be expected.