GOFO Yourself

62
Wed, Oct 16, 2013 - 9:55am

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: https://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: https://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: https://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

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  62 Comments

flyinkel
Oct 16, 2013 - 10:23am
nut cutter
Oct 16, 2013 - 10:23am

bart looks pretty sic... really sic

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

nut cutter
Oct 16, 2013 - 10:24am

that was

3rd by the way

smcpvalu
Oct 16, 2013 - 10:25am
Down Range
Oct 16, 2013 - 10:25am

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

wildstylechef
Oct 16, 2013 - 10:26am

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

nut cutter
Oct 16, 2013 - 10:28am

Was he on CNBS?

Let me know and I'll post a link.

Urban Roman
Oct 16, 2013 - 10:29am

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
Oct 16, 2013 - 10:41am

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
Oct 16, 2013 - 10:49am

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...

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