Gold Deposits

Central banks or other large holders wishing to earn some return on their gold can swap part of their reserves with the main market makers for a set period in return for interest (which can be paid in gold) that usually varies between 0.5 and 3.0 per cent. The current interest levels are posted in the Reuters Gold Forward Rate Agreement (GOFRA) page.

By the end of 2001, GFMS estimate that over 4,650 tonnes (150 million ounces) had been committed to the market in the form of deposits and swaps, with around 2/3 of this being used to fund producer hedging. In the past, deposits were usually for six months or less but these days one year terms are common and some central banks have even extended the maturity of their lending to well beyond this point in order to improve returns. The facility was originally used mainly by small central banks and some withdrew after losses were sustained of gold deposited with Drexel Burnham Lambert, the New York Investment bank that collapsed in 1990. Since 1992, however, the participants have grown to include several leading European central banks. See also Gold Leasing.