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
