Another Review of GOFO and Gold Price

As you know, we've been monitoring this since last summer. The trend continues and the effect on price is obvious.

As we begin, let's first review. Remember that negative GOFO essentially means gold in the hand is more valuable than dollars in the hand or, put another way, holders of physical gold are reluctant to offer their gold out for lease in exchange for dollars. This makes negative GOFO a signal of extreme physical tightness, particularly in London and for the standard, 400-ounce, London good delivery bars.

The LBMA publishes historical records of GOFO rates going back to 1989. In reviewing this information, we find that negative GOFO is a very rare occurrence. In fact, of all the market days between January 1989 and July 2013, GOFO was only negative for seven days total. Considering that's about 6,000 days, being negative for just 7 equates to about 0.117% of the time.

Of course, we all know what has happened lately. In a desperate attempt to MOPE their way through the current quantitative easing madness, the Central Banks have enforced a counter-intuitive raid on the price of gold since October of 2012, driving price down from $1800 to a low of $1180 on June 28, 2013. This extreme and desperate move only served to increase global demand for physical metal and, not surprisingly, has depleted the availability of metal in London. Remember what Ken Hoffman of Bloomberg Industries told us last December:

So, in hindsight, it should not have been surprising when GOFO flipped to negative on July 8, 2013 after being positive every day since November 24, 2008. It should also comes as no surprise that negative GOFO is now the norm, not the exception. In fact, since the price bottom at $1180 on June 28th of last year, there have been 229 market days. Of those days, GOFO has been negative for 133 of them or 58% of the time! GOFO has been in positive territory just 42% of the time or 96 days. Again, you must note that for the previous 24.5 years, GOFO had only been negative for just 7 days. Now, after the massive and counter-intuitive price slam, it's negative nearly 60% of the time?!?

<It's important to note here that some Cartel apologists have written that this can all be explained by low interest rates. If that's the case, why has the Federal Reserve policy of "ZIRP" been in place since 2009 yet GOFO only went negative in July of 2013?>

And here's another curious item...GOFO rates in London have a clear tendency to flip negative during Comex delivery months in New York. Now why would that be? I'm open to hearing any explanation outside of "extreme physical tightness". If you can come up with one after reviewing the chart below, please post your theory in the comments section.

So, here's your updated chart. The green rectangles denote periods of negative GOFO and higher prices. The red rectangles denote periods of positive GOFO and lower prices. The black rectangles at the top of the chart denote Comex delivery months and the numbers in the bubbles denote overall price change for each period.

Cumulatively, during the five periods of negative GOFO, price has risen $356 for an average move of $71.20. For the four periods of positive GOFO, price has fallen $274 for an average of $68.50. Given this clear correlation, it should come as no surprise that GOFO, after being negative for nearly six weeks from April 3 to May 19, flipped back to positive on May 20. In the six market days since, the price of gold has declined by $36 from $1294 to the current $1258.

What's ahead? Clearly, more price weakness. As long as GOFO remains positive, there is plenty of leasable gold available for the bullion banks to utilize in raiding price. However, deliveries of June Comex gold begin on Friday of this week so we can be relatively certain that GOFO will be flipping back to negative sometime in the next two weeks. Once it does, the current selling pressure will abate and price will begin to recover.

An average positive-GOFO move of $68 would drop price back toward $1230. An average negative-GOFO rally of $71 in June/July would then push price back higher toward $1300 and the all-important red trendline on this chart:

Again, these are just averages and I'm not predicting an imminent drop to $1230...though that's only $28 from here. The point of this is to remind you again of the clear, current correlation of GOFO with price trend AND, more importantly, remind you again of The Big Picture:

"You could go into a vault in London a couple of years ago and they were packed to the rafters with gold and the gold would trade from me to you to somebody else. You can walk in those vaults today and they're virtually empty. All the gold has been transferred out of London. 26,000,000 ounces has gone to Switzerland where it's been recast into a higher grade and shipped off to Hong Kong and then into China, never to return. So the most interesting thing, especially as we look into 2014, is if there ever is interest in gold again, and I'm not saying there is or isn't, that gold is just not there anymore."

--- Ken Hoffman, Head of Metals and Mining for Bloomberg Research on Bloomberg Television, December 13, 2013

I remain convinced that the "new normal" of negative GOFO is, in fact, symptomatic of extreme physical tightness and empty vaults in London. Knowing this and the clear correlation of GOFO with price, you should adjust your trading strategies accordingly. For those of us who are stacking only, persistently negative GOFO is just another clue that the end of the fractional reserve bullion banking system is near. Whether or not that "end" comes in 2014 or 2015 matters little. It is coming, regardless, and we should continue to look at these manipulated and suppressed prices as one last gift from the soulless central bankers who have plundered our national treasure and set our posterity on a course of permanent debt enslavement.

TF

39 Comments

Turd Ferguson's picture

fwiw

MODERATOR

Because of the urgency of the message regarding GOFO and price, I'll likely make this a public thread and send it over to Chris Powell sometime late tomorrow or Friday.

Turd Ferguson's picture

more fwiw

MODERATOR

I recorded this with Kerry last Friday and it goes deeper into the discussion regarding physical tightness, price trend and sentiment.

http://financialsurvivalnetwork.com/2014/05/turd-ferguson-the-emerging-new-financial-world-order-is-taking-shape/

Turd Ferguson's picture

And I guess we can add Russia

MODERATOR

And I guess we can add Russia and China to the growing list of "concerned" nations:

http://www.zerohedge.com/news/2014-05-28/putin-says-russia-china-need-ensure-security-their-gold-reserves

CPE's picture

Turd

Question on GLD: I believe GLD is a complete and total fraud, and in your great podcast yesterday you went over your way of looking at things in acknowledging the fraud/manipulation.  In that light, what do you make of GLD increases or decreases in “inventory”? 

Please forgive this leading question, but I’ve been thinking about that “inventory” and believe it’s just a book entry in a fractionally reserved LBMA.  Since the vaults are empty, how does this “inventory” affect GOFO or fund the physical drain during slam downs?  Does the 8.39 tons in additional “inventory” mean that JPM covered a bunch of ETF shorts since ETFs can mechanically have more shorts than longs outstanding?  I just wonder how the shuffling works and if maybe anyone knows other than the fraudulent custodian?  I’m guessing that an increase in inventory is closed out shorts that are really no real increase in inventory but just a way for JPM to balance books between scams.  Then they add more shorts to disgorge more “inventory” but this cleans out more physical bars or leased gold…

What do you think?

Chuck Diesel's picture

Re: Ken Hoffman Bloomberg Interview

Was there ever any follow up with Ken after this Bloomberg interview about how he knows that the "gold is just not there anymore"? As a PM analyst, he knows full well the power of this statement, so I have to believe his source of information is either first-hand or very credible.

Turd Ferguson's picture

And I apologize for

MODERATOR

And I apologize for continually pounding this drum but there are only two possibilities:

  1. Gold must rally and catch up to the Long Bond
  2. Rates must reverse and skyrocket so the the Long Bond falls toward gold

It's one or the other.

Turd Ferguson's picture

Not that I know of

MODERATOR

Ned gave me his email address but he hasn't responded to my requests. 

Bollocks's picture

Turd took

first, second, third, sixth and seventh.

Outrageous. I want my money back!

Turd Ferguson's picture

Yes, I think you are right on

MODERATOR

Same with SLV.

NO WAY that it's logistically possible for all of this to be physical metal shuffling. Simple paper receipts etc.

As to yesterday's addition to "inventory"...Very likely just a covering of a previous short sale and we've seen this a few times earlier this year. Whether or not its an actual addition of physical metal hardly matters as it will likely be shuffled right back out in a few days.

For example, the GLD added 7.49 mts on 1/17/14 and it was all gone by 1/23/14. It also added 7.50 mts on 2/13/14 and it was all gone by 2/19/14. Lastly, it added a total of 8.69 mts over 3/20 and 3/24 and it was all gone by 3/31.

Yesterday's 8.39 mts addition will very likely meet the same fate by sometime next week.

Response to: Turd
CPE's picture

RE: Yes, I think you are right on

Thanks!

At least all my descendants will be happy paying down the debt mountain that we built trying to save such a wonderful system.  I mean obviously Too Big To Fail banks are the reason they have bread on the table right?

4 oz's picture

1/4 oz fractional's??

Well it'd be easy to bick 'n moan about PM prices....but why?

(Just cuz they go down with no reason....lol?)

TPTB doing what they do---- nothing I can do to change it; Status quo I've enjoyed all my life continuing  has many advantages too...  like clean running water....or pizza...

But lately I've been thinking to begin stacking 1/4 oz fractional's at this ridiculously low price ....and  ya know...beginning to think  having a working strategy to pick some up over the course of the summer might be a nice thing to have in place....and make me feel all the more positive about price getting hit....while putting into motion an entirely new stacking play...

Bollocks's picture

...and ninth.

things are going from bad to worse crying

StevenBHorse's picture

How the game is played

ExtemeGold24hr.png

ExtemeGold10am.png

How to manipulate the fix.

1)  Decide which direction (2/3 down http://www.bloomberg.com/news/2014-02-28/gold-fix-study-shows-signs-of-decade-of-bank-manipulation.html)

2)  Dump massive amounts of paper contracts onto COMEX during FIX

3)  Make money

COMEX is the key.  

While London is a much larger physical market, COMEX is where the price is controlled.  Being much smaller it takes much less capital to move prices hither and thither.  London moves with COMEX due to the arbitrage factor.

images?q=tbn:ANd9GcQzOhUERtNUYS9qYmQOwsi

Winnie

Hunsader is getting closer and closer to helping pull the veil off the whole thing.  He's got all the data.   I have been poking and prodding him on twitter.

The dots represent events where 500 contracts traded in less than a second.

http://www.nanex.net/aqck2/4635.html

Airgead's picture

Small correction 7 out of 6000

= 0,117 %

tread_w_care's picture

Turd did you mean POSITIVE GOFO here:

Cumulatively, during the five periods of negative GOFO, price has risen $356 for an average move of $71.20. For the four periods of negative GOFO, price has fallen $274 for an average of $68.50.

Four periods of positive GOFO?  Or did I misunderstand this again? 

infometron's picture

Reposting: Some musings on this and that...

Three things on my mind lately:

Recent reports (on zerohedge & elsewhere) indicate

1) S&P levitation due to massive (often leveraged) Corporate stock buybacks, as there is no point to investing in CapEx in a poor economy, and in order to enhance Earnings per Share, thereby compensating CEOs handsomely (i.e., perhaps not all due to "plunge protection team"). So, what happens when companies stop buying back shares?

2) treasury rate declines due to big bank carry trades, as they can borrow extremely large amounts at very low interest and reinvest in bonds at higher interest (i.e., perhaps not all due to covert FED QE). So, how and when will this carry trade unwind?

3) inflation sneaking up on us fast (i.e., perhaps not all due to food and energy--which insanely are not included in CPI). Yet retail and reality markets (except for the top 1%), bond yields & PM's appear to indicate otherwise!

Points 1 & 2 appear to be due in large part because of low interest rates. If so, are both stock and bond markets in danger of collapse if the FED raises interest rates? Point 3 indicates interest rates may go up. I wonder, should the FED start praying for deflation!?

I guess we are between a rock and a hard place, between the devil and the deep blue sea, between the porridge being too hot and too cold, between this and... whatever!

As for me, as always, I'm stuck between knowing and not knowing!

Happy to be here, trying to figure things out with all of you.

Your insights and opinions much appreciated.

infometron's picture

Re: Ken Hoffman Bloomberg Interview

Turd, is this what went missing? I found the Hoffman Bloomberg interview here:

http://www.bloomberg.com/video/what-s-happening-to-all-the-gold-d33u1c23SDqA0p0e~9_INw.html

nadgeskaul's picture

That's why TF is better than the rest.

This post, along with your assertion of gold being gone in Switzerland, is what separates you from the pack.

Technicals mean NOTHING in a manipulative environment.  Turd, you have moved beyond guessing and are now answering the critical questions with factual evidence.

It is immensely helpful.  Thank you.

tyberious's picture

Golden Truth - Episode 1

Published on May 27, 2014

This video is the pilot video of a joint collaboration between Dave Kranzler and John Titus. Our objective is to present topics which cut through the Orwellian fog that has completely engulfed our entire system and present the bare truth.

Turd Ferguson's picture

Fixed

MODERATOR

This and the percentage thing. Turd typing too fast again. Thanks.

Turd Ferguson's picture

Yes, that's it

MODERATOR

Thank you for finding it. I wasn't having any luck.

Turd Ferguson's picture

No surprise at all

MODERATOR

As predicted, total silver OI surged higher yesterday on the downdraft. This is almost all new spec momo shorting. 

Total OI jumped over 4,500 contracts or 3% on the price drop to the highest level since April 23, then heading into May contract expiration and delivery.

Note that, from that 4/23 OI peak, there were three pretty significant mini-squeezes from the $19 area.

Bollocks's picture

What Happened The Last Time Bonds & Stocks Were So Disconnected?

What Happened The Last Time Bonds & Stocks Were So Disconnected?

Presented with little comment aside to note that bond shorts have not covered (in fact they added last week) and the last time we got this disconnected (with negative breadth in stocks and super low volatility) - things went south very quickly...

20140528_bonds_0.png

http://www.zerohedge.com/news/2014-05-28/what-happened-last-time-bonds-stocks-were-so-disconnected
 

CPE's picture

Bang da close

I see silver spike all too often at 4:01PM.  Shake the last of retail out and buy back a minute later institutions can suck it.

tyberious's picture

Gold Bear Market Losing

Gold Bear Market Losing Momentum

news.goldseek.com / By: Justin Smyth / 28 May 2014

It’s constructive to look at the other side of your positions to see where you might be wrong. If you’re long a market a good way to do this is by taking the inverse of the symbol representing your position. At stockcharts.com, you do this by putting “$ONE:” in front of your symbol and it shows you a chart of the inverse of your position.

I like to do this instead of looking at the leveraged ETFs because they tend to decay over time. The non-leveraged inverse ETFs are fine but they don’t exist for many markets. Therefore using “$ONE:” gives you the bear market perspective of anything you want to look at.

Let’s take a look at the bear market in gold stocks that launched in 2011 by looking at $ONE:GDX. From a Stage Analysis perspective you can see a nice Stage 1 base that developed in 2011 followed by a breakout of the base in 2012. Then the bear market in gold stocks retested the base which happens a lot in early Stage 2 transitions. After the retest the bear market was off to the races in 2013 with the recent high occurring in December 2013. Notice though that in 2014 we are now seeing the 30-week moving average flatten out, and a head and shoulders topping formation has shown up on the chart. This is classic Stage 3 topping action.

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Clarki Stomias's picture

Bill Holter on Gold Manipulation & Trader Dan

Worth the read.  It goes without saying that he disagrees with TD's analysis.

http://blog.milesfranklin.com/it-takes-two-for-it-to-be-a-conspiracy

...

Everyone should view Greg Hunter's interview with Rob Kirby when they can as well.

infometron's picture

@Bollocks

Re: What Happened The Last Time Bonds & Stocks Were So Disconnected?

And the disconnect between the two seems even greater considering the following:

                      July 2011               May 2014          Difference

S&P               ~1340                    ~1912                  >40% increase

30Y                ~4.3                       ~3.3                    >23% decline

CPE's picture

GLD

Flat today, "inventory"* is at 785.28 tons

*inventory is fictional and should not be relied upon in case of counter-party implosion and/or vaporization

Bollocks's picture

Clarki Stomias - I guess you didn't read it then.

He doesn't disagree with what Turd and us lot here (on the whole) are saying at all. He likes trader Dan but does not agree with him.

"I would never dismiss what Dan has to say out of hand but after reading his piece, I do disagree with much of it so I guess we’ll just have to agree to disagree."

(hey, he used one of my favourite phrases 'agree to disagree' - and twice smiley)

Bollocks's picture

infometron

Thanks for the info. Wow, that's huge.

Btw, it's an O not a U. They're different animals wink.

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