Wholesale prices for gold rose 1.1% in Asian and London trade Wednesday morning, nearing yesterday's 1-week highs at $1260 per ounce as the rate for leasing and borrowing gold rose further.
Silver prices rose 1.8% from an overnight low at $19.05 per ounce.
Equity markets slipped while commodities rose with major government bond prices, nudging 10-year US Treasury yields further back from Monday's 2.73% – their highest level since August 2011.
Interest rates on weaker Eurozone debt rose, however, after ratings agency S&P cut Italy's long-term credit to BBB, just two notches above "junk" status.
"There has been some [gold] borrowing interest recently," the FT quotes Swiss bank UBS's precious metals strategist Joni Teves. "It's related to the demand for physical," with premiums in Shanghai continuing to hold $40 per ounce above London's benchmark.
"As wholesalers, refiners and retailers of investment products are scouring for the metal to make physical products," agrees consultancy CPM Group's head Jeffrey Christian, speaking to Reuters, "some of them are actually borrowing the gold in advance."
After falling into negative territory for the first time in 5 years on Monday, the forward rate offered by London bullion banks fell further to -0.12% on 1-month swaps today.
The offered rate is paid to borrowers who are willing to swap cash for gold bullion, and so bear the cost of storage and lost interest payments for the period of the swap.
Data from trade association the London Bullion Market Association show gold offered rates were last negative – meaning that gold owners are demanding payment, rather than offering it – in November 2008, after the collapse of Lehman Brothers.
One-month rates have only been negative on 12 trading days in the LBMA's twenty-four year records.
The most negative rate – meaning the highest rate demanded by large gold owners – came at -4.53% in September 1999, when European central banks agreed to cap their annual gold sales. A sharp jump in gold prices forced a scramble amongst gold mining companies who, after a near two-decade bear market, had borrowed and sold gold for fear of further price drops.
The rising price and cost of borrowing gold led to the near-bankruptcy of Ghana miner Ashanti.
"[The negative rate] is important news," says refining and finance group MKS's daily note.
"It has piqued people's interest" in buying gold to profit from a squeeze on bearish traders, the FT quotes a senior bullion banker, with the turnaround in the gold borrowing rate helping support prices after the worst quarterly drop in three decades.
Barring a spike in May this year, the overall return to large gold owners for offering metal for a 1-month swap and earning the interbank interest rate on the cash received hit its best level since February 2009 at 0.30% annualized.
Meantime in Asia on Wednesday, gold retailers in India – the world's No.1 consumer market – agreed Wednesday to suspend further sales of gold coins and investment bars, meeting a government plea for help in reducing gold bullion imports.
The All India Gems & Jewellery Trade Federation, which this week proposed a gold-deposit banking scheme to "mobilize" existing households stockpiles and so reduce gold imports, said more than two-in-three of its 40,000 members have agreed to the ban.
Physical gold demand from wholesalers in China, the world's No.2 consumer, was strong overnight according to dealers.
Looking at recent weak economic data from China, "A hard landing could shake faith in the government," says a note on gold investing from Barclays Research, and lead to a big fall in Yuan-denominated assets.
"[That] could mean gold becomes important for domestic investors to hedge what they may view as a greater set of risks than previously," reckons Barclays commodities analyst Sudakshina Unnikrishnan.