Mystery Theater: GOFAUX artifacts and Germanic bankster tragedy

Fri, Sep 6, 2013 - 4:09pm

As you may have noticed, there has been a bit of discussion lately about the GOFO – the Gold Forward Offered Rate, published by the LBMA and generated by the member banks. According to the LBMA, it “represent the rates at which dealers will lend gold on a swap basis against US dollars”.

In more detail from the official LBMA FAQ (emphasis mine):

“The contributors are the Market Making Members of the LBMA: The Bank of Nova Scotia–ScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA London Branch, Goldman Sachs, JP Morgan Chase Bank, Société Générale and UBS AG.

The means are set at 11 am London time. These are the rates shown on the LBMA website. To show derived gold lease rates, the GOFO means are subtracted from the corresponding values of the LIBOR (London Interbank Offered Rates) US dollar means. These rates are also available on the LBMA website.

At 10.30 am London time, the Reuters page is cleared of all rates. Contributors then enter their rates for all time periods. A minimum of six contributors must enter rates in order for the means to be calculated. At 11.00 am, the mean is established for each maturity by discarding the highest and lowest quotations in each period and averaging the remaining rates.

They provide a basis for some finance and loan agreements as well as for the settlement of gold Interest Rate Swaps.”

All of the numbers displayed in the charts below can be found at these sources:

LBMA Gold Forwards

LBMA Gold Fixings

SPDR GLD Historical Data

The more recent activity of the various maturities can be followed here:

  Image cannot be displayed

The longer-term picture looks thus:

  Image cannot be displayed

Unsatisfied with the clarity these charts provide as to HOW exactly GOFO may presage up- or downturns in gold price (which is a perennially popular, yet to my feeble mind insufficiently explained 'truism'), I decided to play around with the numbers a little bit. Everything that follows on this topic is pure ‘sophistry’ for lack of a better term. None of the metrics displayed have been sanctioned by any precious metals gurus, analysts, bankers or economists (that I know of – though examples of similar approaches would be very welcome).

So, what is a lad to do when trying to analyze a trend over time, and the straight numbers don’t offer clarity? Why, make the dataset more complicated, of course! What I’ve done below is remarkably simple (and only debatably useful) – calculated the per-ounce cost of borrowing gold on a swap basis against USD, adjusted to the prevailing gold price at the time. Behold: GOFAUX™

  Image cannot be displayed

In the interest of saving a bit of time, I will spare you the other (less productive) rabbit holes I went down and try to cut straight to the chase. But one interjection is needed – why plot the data only from 2000? A strange little set of things happened from 1999 onwards, timeline courtesy of Bloomberg:

May 1999: Bank of England announces sales of gold reserves in five auctions.

August 1999: Gold falls to low of $251.95

September 1999: First Central Bank Gold Agreement announced where 15 European central banks including the European Central Bank agreed to limit collective sales to 2,000 metric tons over five years through 2004.

2003: First gold-backed exchange-traded fund started.

March 2004: Second Central Bank Gold Agreement limiting collective sales of European central banks to 2,500 tons through 2009.

November 2004: SPDR Gold Trust, world’s biggest gold-backed exchange-traded fund, created.

So, suspending disbelief for a moment, please consider the following in light of the fact that you are reading the ramblings of a dope with a spreadsheet and a penchant for goal-seeking patterns that he WANTS to be able to see:

  • There is an odd similarity in the shape of the GOFAUX™ (daily GOFO x daily gold PM London fix price) curve and that of the prevalent gold prices ca. 1358 days later (the average of the timespans between ‘peaks’ and ‘lows’ on the chart).
  • Any and all economic, financial, demographic data – heck ANY data controlled and disseminated by .gov, banks and MSM is suspect. The very basis of all of this could very well be mere fantasy based on garbage in, garbage out.
  • There could be NO rational connection between DAILY gyrations in GOFO and gold prices from 4.5 years ago to the activity of the gold markets TODAY. Could there? This has all got to be irrelevant, arbitrary conjecture from a dilettante.
  • Well, I thought there has GOT to be some fallacy involved in my train of thought. There MUST be a fundamental (and quite simple) obvious explanation for seeing this. And there very well may be, I look forward to your thoughts on this.

    But taking this madness one step further, I did one more transformation – I shifted the dates for this arbitrary and artificial GOFO/ounce metric by the average number of days between peaks/troughs ‘observed’ (capriciously picked by eyeballing the chart in haste, due to a lack of graphing/analytic software to plot and capture ACTUAL highs and lows, slopes, differences and retracements). The chart below displays gold price in ‘real’ time, and lined up with it shows the GOFAUX average values from 1358 trading days prior.

      Image cannot be displayed

    The correlation coefficient for the 1,130 data points involved: 0.9063. If the thought process and underlying data could be considered sound, the odds of this occurring by chance would be VERY CLOSELY asymptotic to zero.

    In the interest of getting this posted, further detailed speculation on this imaginary and potentially specious metric will have to wait for another day. But some baseline assumptions/questions:

  • Is it POSSIBLE that entities (banks, dealers, hedge funds, ETFs, sovereigns and agents of all of the above) engaged in MASSIVE amounts of gold leasing and lending in the 2004-2008 timeframe, creating (unreported) long-term lending agreements with (unreported) swap/lease rates, with a maturity of, oh I dunno, 5 years or so?
  • Could the current activity we are witnessing in both gold prices and GOFO rates be in part due to the expiration of these contracts on a very literal, day-by-day basis? What, exactly WOULD we expect to be happening if this were the case? How would registered/disclosed gold inventories change? What exactly would the lessor and the lender be doing, what specific assets would they be moving (or not moving) upon reaching the maturity of these make-believe long-term gold lending contracts?
  • GOFO can clearly go negative, while actual gold price cannot (at least in accounting terms). The correlation depicted above HAS to break at some point between now and 4.5 years from now (when the negative average GOFO rate would drag the GOFAUX in to subzero values). WHEN, exactly, can this be expected to occur?
  • Completely non-sequitur (?) secondary mystery of the week -- question for the German-speaking Turdites (and perhaps Jim Willie's source):

    There is a potentially very bizarre (though of course possibly explained via completely mundane reasons) scandal of sorts in the German/Swiss financial sector that caught my eye. There was an article (and embedded compilation of links to background stories) that sounds like something straight out of Jim Willie’s accounts:

    “New details are emerging about the suicide of Pierre Wauthier, the 53-year old CFO of Zurich Insurance, that can only be bad for Josef Ackermann, his boss and the former CEO of Deutsche Bank. After Wauthier took his own life last week Ackermann promptly resigned as Zurich’s chairman, saying it was because Wauthier’s family was blaming him—an explanation that seemed dubious to some. Now, various reports published over the last 24 hours have revealed a troubled relationship between the two men. […]

    The CFO’s body was discovered by police on Monday, August 26, when he didn’t show up for work. According to the Wall Street Journal, Ackermann called a meeting of Zurich’s board of directors the next day. During the meeting, he read Wauthier’s suicide note, which repeatedly heaped blame on Ackermann and his tough management style. Ackermann was apparently deeply affected, and wouldn’t respond to directors’ phone calls after the meeting adjourned.

    When the meeting commenced the next afternoon, Ackermann dropped a bombshell: he announced his resignation, effective immediately.

      Image cannot be displayed

    (Pierre on the left, Herr JosefA on the right)

    Think of it this way, as a matter of perspective – JamieD resigns from the top dog spot at JPM to enjoy his spoils of war, and to take the ‘golf-intensive’ job of replacing aging Uncle Warren as the head of Berkshire Hathaway. Two years later, instead of resigning in protest (and taking an even-better option at another financial powerhouse), the CFO of the latter company commits suicide and scrawls a dying condemnation of the top bankster in his own blood.

    Is it just ME that thinks this is EXTREMELY unusual for Swiss financial circles? That there may be more behind this tragedy of avoidable, violent catharsis presumably stemming from gargantuan hubris on the part of Uncle Josef? A true moral conflict on the part of Pierre coming out of the realization of what he had done (presumably under the direction/pressure of JosefA)? Bankster infighting collateral damage, aimed at removing JosefA much as DSK was publicly drawn-and-quartered – and Pierre was a mere bishop sacrificed to checkmate the King (aka guided-projectile Arkancide)?

    About the Author


    I Run Bartertown
    Sep 7, 2013 - 9:23am

    "Hessians of the New World Order"

    "Wednesday, John Kerry told the Senate not to worry about the cost of an American war on Syria...The Saudis and Gulf Arabs, cash-fat on the $110-a-barrel oil they sell U.S. consumers, will pick up the tab for the Tomahawk missiles.

    Has it come to this – U.S. soldiers, sailors, Marines and airmen as the mercenaries of sheikhs, sultans and emirs, Hessians of the New World Order, hired out to do the big-time killing for Saudi and Sunni royals?

    The Conference of Presidents of Major American Jewish Organizations has joined the Israeli lobby AIPAC in an all-out public campaign for a U.S. war on Syria...Marvin Hier of the Simon Wiesenthal Center and Abe Foxman of the Anti-Defamation League have invoked the Holocaust, with Hier charging the U.S. and Britain failed to rescue the Jews in 1942...The Republican Jewish Coalition, too, bankrolled by Sheldon Adelson, ...Adelson, who shelled out $70 million to bring down Barack, wants his pay-off – war on Syria. And he is getting it. Speaker John Boehner and Majority Leader Eric Cantor have saluted and enlisted. Sheldon, fattest of all fat cats, is buying himself a war.

    If the rebels then lose, we lose. And if the rebels win, who wins?...Is it the same jihadists who just shelled that Christian village and terrorized that convent of Christian nuns?

    How many Syrians must we kill to restore the credibility of our befuddled president who now says ..."

    Sep 7, 2013 - 9:17am

    @Dr Jerome

    In graduate school, I was taught that if you can show a correlation of .7 or greater, you had a publishable study. Well you should demand your money back because your teacher hasn't a clue what he's talking about. First of all a correlation of 1.0 could mean absolutely nothing, as I explained in my previous post. Second of all, the proportion of variability in the y values that can be explained by a linear relation is precisely r^2. Therefore with r = .9, 81% of the variability in the y values is explained by a linear relation, with r = .7 only 49% can be explained. This correlation should not be ignored or dismissed. No one has said it should. But I can easily find correlations in completely random data all over the place, I should just write a script real quick and plug data into it to find correlations of .7 or greater, I'll be the most published man on the planet. To just accept a correlation of r = .7 or greater is proof of causation is retarded.

    Sep 7, 2013 - 8:05am

    Mr. Fix and old cars

    both you AND alan are correct.

    me and you are just not interested in the 'things' that his young people 'make'

    we are a just different generation with different interests and values

    and i too see problems with theirs

    but i must say.....your restraint to a unnecessarily degrogatory [hows that for a fruedian slip?] missive is usual

    gold slut
    Sep 7, 2013 - 6:06am


    Very interesting article at ZH this morning (sorry, as a Luddite I cannot do linky thing).

    Seems that Polish government have 'overhauled' (stolen) a huge chunk of private pensions to reduce national debt.

    Seems that I was dead right to start stacking!

    Any bets as to who's pension funds are next?

    Sep 7, 2013 - 6:05am

    KWN Weekly Metals Wrap

    Currently not possible to download:

    Page keeps empty.

    Anyone got another link?

    gold slut
    Sep 7, 2013 - 5:46am

    Accident prone bankers

    A very interesting point made by Mr Fix in an earlier post.

    It would be very interesting to compare how many members of the general population meet death by accident/suicide and how many serving bankers by comparison.

    Any statistical genius out there who could answer this?

    Sep 7, 2013 - 4:21am

    Correlation of .9 ???

    In graduate school, I was taught that if you can show a correlation of .7 or greater, you had a publishable study. This correlation should not be ignored or dismissed. Indeed, there can always be an extraneous variable, but that variable x may continue to affect the unfolding of the future as it has the past.

    Sep 7, 2013 - 2:40am


    It’s surprising to me that in the back and forth between Mr. Fix and Green Lantern et al, one word has not come up. That word is “dynamic”. It’s surprising because dynamic is the perfect word to describe any situation that includes military, political and diplomatic elements. As in Syria. Mr. Fix seems disappointed with the actual results of trying to draw charts until one finally tells you something worthwhile that is also valid for more than a nanosecond. I share this view. I am a convicted realist...and see no reason to change. From my perspective, it is just plain nuts to admit that banksters are indeed manipulating the PM markets and that the administration in DC are cooking the books on inflation, jobless rates, etc. while maintaining that the rest of available data is somehow pristine and still valid. Makes about as much sense as reassuring someone that the punch is fine because there are only three turds in the punchbowl. The present, the situation is indeed dynamic. It is constantly changing and it is as volatile as strolling through hell with two open buckets of gasoline. It’s like what the lion tamer said when a chimp grabbed his loaded pistol. “I can’t tell you exactly what is going to happen or when it is going to happen. I can, however, guarantee that it won’t be good and that I do not want to be there.”

    OccasnltrvlrJ Y
    Sep 7, 2013 - 2:27am

    @JY896, re: Travel Routes Abroad

    First of all, that's 10 points for using "take a powder" in a sentence, in context; 5 points for using "boogie shoes" in a sentence, in context, but doggone, you got the 50 point bonus for using both in the same sentence!

    There are three pieces to that puzzle: exit, entrance, and conveyance.

    I don't anticipate a full-scale prevention of exit; I think that would be a fast-path to the whole-scale violence that TPTB would prefer to avoid.

    About entrance: I suggest everyone consider taking steps NOW to have a place to go to. Today, the passport from the United States opens many doors with almost no effort, but that could quickly and abruptly change. (And, the passport itself is the property of the US Dept. of State.)

    About conveyance: That seems to be contingent upon the intended destination. Not a simple thing, but I think that so long as one has legal right to travel, there will be some business ready to transport. It seems that the trains have always run; getting on, staying on, or getting off have been the problem.

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