Gold Leasing: High-Net-Worth Investors Monetizing Gold Holdings

Gold Leasing: Turning Dormant Gold into an Income-Generating Asset

Gold prices have soared to record highs this year, prompting many high-net-worth investors and family offices to seek ways to activate their gold assets. Instead of letting gold bars sit idle in vaults, these investors are turning to gold leasing, renting out their gold to refiners, jewelers, and manufacturers, shifting the traditional perception of gold as a non-yielding asset.

"We're getting a lot of calls from people saying, 'I have $2 million of gold bars, I have $1 million of gold bars, can you help me lease it out?'" says Gaurav Mathur, founder of SafeGold. "There's been a huge change in the last few months, and a lot of wealthy clients are now receptive to the idea of leasing gold," he added, revealing that SafeGold's leasing volume has surged from $2 million at the start of the year to $40 million.

The Appeal of Gold Leasing

The attraction of gold leasing lies in the fact that it allows investors who plan to hold gold anyway to earn gold-denominated yields through the rent. In turn, jewelers and manufacturers gain access to the gold they need for daily production. Since borrowers repay the same quantity of gold rather than dollars, they maintain their inventories and avoid price volatility risks.

SafeGold currently offers secured lease yields of 2% and unsecured lease yields of 4%. Earlier this year, these rates were as high as 3% and 5%, respectively.

How it Works

The gold leasing process operates similarly to lending, with the difference being that the asset is denominated in ounces rather than cash. While there are slight structural variations, the core logic is identical: investors provide gold to a leasing platform or financial institution, which in turn lends the gold to businesses.

For jewelers, refiners, or manufacturers requiring gold to create jewelry or components, they avoid borrowing cash and bearing the risk of price fluctuations during the holding period. Instead, they can sell the finished products at current gold prices. The borrowers then pay a lease rate (a type of interest denominated in gold), and upon maturity, either return the same quantity of gold or renew the lease.

The Risks Involved

However, gold leasing carries counterparty and operational risks not present in simple storage. John Reade of the World Gold Council notes, "Lending out gold – whether leasing or swapping – carries counterparty risk, the risk that the borrower might not be able to repay."

Mathur of SafeGold states that the company conducts an authenticity check on every gold bar that is returned. Similarly, Keith Weiner of Monetary Metals says that his platform uses insurance, audits, cameras, and radio frequency identification technology to limit theft and fraud, but cautions that "zero risk can never be achieved" in eliminating risk.

In conclusion, gold leasing offers an attractive opportunity for wealthy investors to generate income from their gold holdings, but it's essential to understand the risks involved and take appropriate precautions to mitigate them.