Thanks for the good explanation.
It seems that this gold lending business not only help the jewelers to defray paying for gold before collecting the money from customers, it also helps them from carrying the market risk of gold. They don't need to worry price of gold goes up and down, as they can pay back the gold lender the same time their customer pay them the market value of gold. They do, however, want to make sure their product is quickly sold, in order to minimize the amount of interest they have to pay to the lender.
What I don't understand is the other explanation offered by the link I posted earlier:
High lease rates will encourage stockpilers of the metal to sell into the spot market even when they wish to maintain their inventory levels. Being guaranteed to buy the same metals back for a lower cost at a future date offers them every possible financial advantage.
I would think high lease rate happens when gold is speculated to go up, or the spot price is lower than the future price. If I have a lot of gold and when I perceive gold price is going up, I would like to hold on to my gold instead of selling them. If I can lend it out to take advantage of high lease rate to make some nice "interest" on my gold, that would be make it even better. What go wrong with my logic here?
A different point, it also seems that any organization with a lot of physical gold can get into this gold lending business, such as GLD or gold miners. It would be a nice side profit if they run it right.