The cost of borrowing gold has risen to the highest since the post-Lehman Brothers scramble for supplies, as the bullion market adjusts to a new era in which western investor demand is less dominant.

The niche gold lending market, largely the preserve of a few big banks and central banks, has been uneventful in recent years as investors have built up large holdings and lent them out on the market, keeping rates depressed.

But as investors have turned sellers in recent months, availability of gold in the lending market has been squeezed, bankers said.

The squeeze has triggered a sharp rise in gold leasing rates – the implied interest rate for lending gold in the market in exchange for dollars. The one-month gold leasing rate has risen from 0.12 per cent a week ago to 0.3 per cent on Tuesday, the highest since early 2009.

The move reflects the dramatic shift in the gold market over the past few months as investors have liquidated their holdings en masse, triggering a 25 per cent collapse in prices since the start of the year.

“The market spent 10 years getting long,” said David Rose, global head of metals trading at HSBC. “Liquidation is going to be around for a while.”

Several other factors have contributed to the tightness in the leasing market, traders and analysts said.

Strong buying in Asia has created additional demand for physical gold, with refineries operating at full capacity to meet orders.

“There has been some borrowing interest recently. It’s related to the demand for physical,” said Joni Teves, precious metals strategist at UBS, noting that the price of physical gold in China remained more than $40 an ounce above benchmark London spot prices.

At the same time, expectations of rising US interest rates as the Federal Reserve tapers its programme of quantitative easing have made banks less willing to lend gold. Finally, some medium-sized gold miners have started hedging their future production, traders said, a trade which has the same effect on the market as borrowing gold.

The lack of liquidity in the leasing market has pushed gold forward rates, known as “gofo”, into negative territory, meaning that gold for future delivery is trading at a discount to physical market prices – a rare situation that has occurred only a few times in the past 20 years. The last time forwards were negative was in November 2008, when a scramble for physical gold spurred a sharp price rally.

Traders said that investors were alert for the possibility that the current tightness could trigger a squeeze among hedge funds with short positions in gold, potentially driving prices higher. “It has piqued people’s interest”, said one senior precious metals banker. Gold was trading at $1,248.50 a troy ounce on Tuesday, up 5.8 per cent from a three-year low at the end last month.

Nonetheless, few believe a rally would be long-lived. “Every rally we see is a short-covering rally which quickly evaporates,” said Mr Rose of HSBC.

Although leasing rates have rallied sharply in recent days, they remain well below the peaks of previous eras. In 2008 one-month leasing rates rose as high as 2.7 per cent while in 1999 they reached 9.9 per cent, according to London Bullion Market Association data.

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