GOFO Yourself

I wanted to use that title when GOFO rates were negative back in August. Today, I finally got my chance!

OK, so GOFO rates are negative again. What does this mean, if anything? I'll take a stab at it.

Back in July, DenverDave wrote a great piece, explaining in English just what GOFO is and what negative GOFO implies. You can read it yourself by clicking here: http://truthingold.blogspot.com/2013/07/gofo-explained-and-why-its-now-very.html

Recall that GOFO rates had turned negative on July 8 and the remained negative for an unprecedented 40 trading days, finally going positive again on September 2nd. On Friday, July 5, the closing price of gold was $1215. Since the U.S. markets were closed on September 2, the closing price of gold on September 3 was $1412. That's a $197 increase in eight weeks, a rise of 16.2%.

Until today, GOFO rates had remained positive in the time since and we can see the effect on price as it has fallen from $1412 to yesterday's close of $1273.

Below is the current GOFO structure. Note the clear trend of the past five days: http://www.lbma.org.uk/pages/index.cfm?page_id=55&show=2013

DATE                  1-mo           2-mo            3-mo           6-mo          12-mo

10-Oct-13          0.10500     0.11333           0.12333       0.13000      0.17667

11-Oct-13          0.08167      0.09000         0.09833      0.12167        0.17667

14-Oct-13         0.04500      0.06000         0.06833     0.09667       0.15167

15-Oct-13         0.00000      0.01167          0.02333        0.06500     0.14500 

16-Oct-13        -0.06000     -0.04833       -0.04000    0.02500    0.13167

At this point, I'd like to get excited. On the surface, it appears that GOFO is moving rapidly negative and the implications on future price are clear. I'd like to get excited...but I'm not willing to just yet. Why?

Recall what negative GOFO means/implies. From DenverDave's post above:

"A negative GOFO rate means that gold in hand today is worth more than U.S. dollars in hand."

In this context, it would appear that this sudden movement toward backwardation might just be a simple reflection of the current turmoil in the U.S.

Note this ZeroHedge article which points out that yields on U.S. treasury bills are soaring, particularly bills that mature in the next few weeks: http://www.zerohedge.com/news/2013-10-16/treasury-bills-are-collapsing-stocks-surge-once-again

So what we have is a genuine concern of short-term "default". As this effects dollar-gold...Would you rather hold your gold or exchange/lease it for dollars? Again, look at DenverDave's negative GOFO definition. "Gold in hand is worth more than dollars in hand". Given this "crisis" environment, it should come as no shock that "gold in hand" is preferable to dollars. Consequently, it should come as no shock that GOFO is suddenly negative.

Anyway, the point is: Let's give this a few days. Already there are wire reports this morning that the U.S. House is going to cave to the Senate and Milhous. If the "crisis" passes, albeit temporarily, GOFO will likely move back positive AND gold will be quickly hammered under the guise of a "movement away from safe havens".

Remain patient and diligent.

TF

62 Comments

wildstylechef's picture

Screwed up

All as normal, I shall pray for Fitch to come down as the rath of sanity with the downgrade as they should as this government couldn't organize a birthday party for a 1 year old where their only job would be to light the candle

flyinkel's picture

Perhaps a buying opportunity

today.

nut cutter's picture

bart looks pretty sic... really sic

is it me or does bart look like someone who has a sic look...  cancer sic?

nut cutter's picture

that was

3rd by the way

smcpvalu's picture

i couldn't help myself

First

Down Range's picture

Bart

That's what happens when you work in Bull Shit and Human Excrement all day.

He might save himself if he takes a shower of TRUTH!

Dawg

Turd Ferguson's picture

Was he on CNBS?

MODERATOR

Let me know and I'll post a link.

Urban Roman's picture

Gold in hand. ... Keeps

Gold in hand. ...

Keeps sounding like a better idea. Think I'll quit piddling around and go visit the LCS. 

tmosley's picture

Turd: Could you get us an

Turd:

Could you get us an update on the SIFO rates from your source that has access.

I know they are probably manipulated, but I just want to see if they are lining up at all.

Blythesshrink's picture

On the plus side, the last

On the plus side, the last couple of peaks in the GOFO rates lasted between 2-3 weeks, so the drop now is on schedule - based on the pattern we've seen over the last 9 months or so. Almost like there's been a supplier of physical into the market every now and then - which has been sold over the course of a couple of weeks to slam price...  

Keg's picture

Fitch

Fitch says they might downgrade even if the debt limit is raised if Congress does not do "enough".  What the hell would be enough?  Are they saying that the more they raise the debt limit the more likely they will be not to downgrade?  So, the more the US borrows, the more credit worthy it is? 

In other news, up is now down.

nut cutter's picture

turd

yes cnbs    today

G-Rod's picture

Paper Selling = Physical Delivery?

At Blythesshrink (You poor bastard...).

Almost like there's been a supplier of physical into the market every now and then - which has been sold over the course of a couple of weeks to slam price

I'm thinking... that when you see paper slams on the COMEX that real physical gold gets moved in London and other parts, and hence the bleedout of Gold from GLD/COMEX/Western CB Vaults continues.

I.e. This is a limited game that can only be played so often - it doesn't have infinite ammo - real, physical gold is on the move and is the limiting factor.

If it was an infinite game - it could be played forever, and there would never by any threat of hyper inflation and fiat currencies would naturally last forever - clearly that has not happened - therefore it is limited - and I suggest that physical gold is providing the limit.

Blythesshrink's picture

Paper Selling = Physical Delivery?

G-Rod - it's not a nice job, but someone has to do it. 

Totally in agreement about the physical getting drained and must act as a brake.

Turd Ferguson's picture

Well, OK then. Here he is...

MODERATOR

In all his glory. What a complete and total deltabravo.

 

Turd Ferguson's picture

Btw

MODERATOR

I'm ready to fight him again. Anytime and any place. And I will inflict an even greater beating than I did last time. 

Below is the footage of our first fight. As you can tell, at the beginning, MrsF was a bit nervous but, for Turd, it was no big deal.

 

G-Rod's picture

That's one tough job you got there - now here's a better option

Hi Blythesshringk, you could take a step up from delving into Blythes mind on a regular basis and take on this guys job.

http://www.liveleak.com/view?i=7b1_1345430583&comments=1

tyberious's picture

Isn’t It Interesting…

Author : Bill Holter
Published: October 15th, 2013

http://blog.milesfranklin.com/isnt-it-interesting

"

That “it’s” happening again?  “It” being that the GOFO rates which had gone slightly positive for the last month have collapsed again over the last 2-3 days as the price of gold was forced lower and are nearly negative again.  Zero Hedge put out a piece this morning with some very neat NANEX charts which shows the gold market by the nanosecond and displays the big volume/price dumps over these last few days.

This has truly become hilarious because unlike the “old days,” manipulation has become publicly blatant with zero effort to hide it other than having the CFTC give it their blessing with holy water.  The move toward backwardation in the GOFO rates is significant in my mind because it is occurring at the same time that COMEX stands to lose roughly 60% of their registered gold.  If no more gold enters the dealer side between now and Dec. we will have a disastrous “cash settlement” which of course will not be called a default…but in reality and practicality “default” it will be.

December currently has contracts open representing 22 million ounces of gold while the registered gold is only 700,000 ounces.  Once October is finished there will be only 300,000 ounces remaining unless the inventory is replenished.  (Please keep in mind that JP Morgan has had exactly ZERO outside ounces delivered in since Jan. 1st).  This is a default in the making!  What has been done time after time looks to be happening again, supply has tightened up…and yes, exactly at the same time that “price” has been pushed down.  This economically makes no sense whatsoever from a supply and demand standpoint.  If actual gold was being sold…supply would be plentiful and there would be no pressure for GOFO rates to go negative.  Friday’s dump in price was clearly new short selling as the open interest rose over 7,000 contracts or 700,000 ounces.  Who has this amount of metal to either sell or sell short?  The answer is NO ONE!"

"Before finishing I do want to add on to what I wrote over the last 2 days regarding the Chinese.  As you know, they publicly talked about “de Americanizing” the financial system.  They ALSO publicly dressed down the Japanese for pursuing “opposite policy” where they raise taxes next year while printing another 5 trillion more new Yen.  These statements by the way came out on the heels of the G-20 meeting over the past weekend.  It seems to me that they were emboldened somehow at this meeting.  Maybe they were approached by other members in support or maybe they cut new deals (their last was last week with Europe) that further undercut the U.S./British/Japanese alliance.  Whatever it was, the timing right after a G-20 meeting is curious and maybe quite telling.  Keep your antennae up and do not be surprised by the doors being shut with some sort of “announcement.”  There will be no advance notice whatsoever other than using your own common sense knowing that a currency reset is the coming objective."

End

ggnewmex's picture

Well good

Things are all fixed.

We are going to agree to issue more debt to pay the debt we have already incurred.

It is so.. infuriating. No one, I mean NO ONE, ( except us and Peter Schiff) will talk about what a debacle this all is. One big Ponzi scheme.

Indeed, unless we print more money, we will not pay you back what we owe.

Absolutely disgusting

288

Turd Ferguson's picture

Yep

MODERATOR

And how soon until the realization hits the all of the "shutdown and default" stuff means absolutely ZERO chance of even a "Bernank Legacy" taper. Not happening. As soon as the govt starts printing reports again, the damage will be in full view. Just another excuse to keep on QE-ing to infinity.

Response to: Well good
Mickey's picture

what's apparent

is when this whole charade breaks down its going to be a disaster.

marc faber was right last week--when this collapses it will be from a higher level

and we probably will not have a US society left.  Everybody will be angry except the bankers and pols who were inside and left the country sending their gold and silver ahead of their move.

G-Rod's picture

Even if they print money...

They will not pay back what they owe - but that is one of the objectives isn't it.

Nick Elway's picture

Enemies masquerading as friends

I can't count the number of times I have been lulled into not taking action believing someone I thought was a friend was going to take some action on my behalf.  I think of all the time the PM community wasted believing the CFTC would take some meaningful action.  IMO Chilton did more damage to freedom than Gensler and Blythe combined.

Perhaps there is a lesson to be learned here, both in whom to trust going forward and a strategy we may use to combat statism.   Can we do good by pretending to be statist sympathizers?  It is a dangerous approach: Kurt Vonnegut warned that we should be careful what we pretend to be, because we are likely to become what we pretend.  On the other hand there's little denying the damage Chilton has done by pretending to believe in the rule of law.

Big Dutch's picture

Does Bart Fricken EVER

Have an interview or speech where he doesn't bring up limited manpower, limited budget, limited, resources, etc?

Seems he's laying the groundwork for his defense if he's ever prosecuted for breaching his duties.

G-Rod's picture

I find it very interesting that gold/silver are not moving

While the DJIA/S&P500/NASDAQ/Russell2000 all start shooting to the moon (at least temporarily)

Clearly the resolution of the debt ceiling is not meant to be considered bullish for the precious metals.

Give it some time to create "distance" from the event, before the foot comes off the throat.

ZILVERMAN's picture

i think

that we will see 1180 soon,pfffff

Mickey's picture

Printing

does the investing world understand that with China backing off buying and holding treasuries--even in a small way--all the new debt incurred has to be bought by the Fed or our retirement accounts?

Greece and Cyprus are not going to buy our debt and I do not think Russia will either. The big buyers were china and Japan and Japan is in its own troubled situation.

no taper--fed goes big. and when will that be seen? next week when the Treasury has to unwind what it has down the last 4-5 months.

extraordinary measures can only go so far

this goes beyond metals--its our society and lifestyle that will be shot to hell.

Keg's picture

Special measures

We all know the debt ceiling was actually reached in May.  Since then they have been using "special measures" which includes things like not making contributions to the civil service pension fund.  This causes me to ask two questions:

1. Since the fiscal year ended 9/30 and the annual deficit was reported to be down 35-40%, how much did these "special measures" lower the deficit.  I would assume this will drive the deficit higher next year as these payments are made up.

2. What will the GAAP deficit show when it is announced?  My guess is that it will be higher than the previous year, not lower as the liar deficit shows. 

Taper and still be able to fund this deficit?  I don't think so.

H8Fiat's picture

Special measures

Keg, I have often wondered about "special measures".  If the Gov is paying the bills by "borrowing" from TSP accounts, other dedicated gov funds, isn't this stealing unless they had express permission of fund participants?  Why wouldn't this have been a debt owed to replenish and thus part of debt ceiling?  It sure wasn't the Gov funds they were using.

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