Quote from Rearden Metal:
Paris' line of thinking <b>can</b> easily lead to a risk-free rate of return which is in fact, higher than money-market or short term paper.
Without putting any effort into it, I just found a contango spread which accomplishes this:
BUY Aug '06 Gold at 616.0 with intention to take delivery.
SELL Oct '06 Gold at 622.6 with intention to deliver.
You net 1.0714% in two months, which is about 6.5% annualized.
Not much over the 'normal' risk-free rate, but keep in mind two things:
A)Your taxes on this 6.5% yield are lower than they'd be on the 4.75% money market yield.
B) That's only the contango spread available <B>today</b>. Keep watching spot vs. forward gold, and you'll find many momentary opportunities for a risk-free rate north of 8% annualized... probably even north of 10%, at the right moment, on volatile days.
Quote from Rearden Metal:
Check out Friday's closing prices in gold futures, and you'll see what I mean.
Sep '06 gold: $646.6
Oct '06 gold: $651.5
BUY Sep '06 Gold at $646.6 with intention to take delivery.
SELL Oct '06 Gold at $651.5 with intention to deliver.
You net 0.758% in one month, which is about 9.1% annualized.
Factor in slippage, and a 9% annual yield is more realistic.
If my AUM was a bit more substantial, I'd be quietly taking these plays instead of pointing them out on ET.
Quote from Pabst:
You have bad prices. A one month gold spread is trading at $3.30. Implied yield before storage of just over 6%.
The "juice" in any cost of carry spread (including Index programs) is the ability to fund the trade at below market rates. That's exactly why many brokerage/trading firms will give competitive interest rates on trading account balances. For someone who can borrow size at 4-5% these trades work.
BTW: Sept is a bastard month in Gold Use Aug-Oct for you're calculations