Yah, Well...GOFO Yourself!
One week ago, London GOFO rates were comfortably positive. One week ago, I warned you that they were about to go negative again and, today, they did. Add this to the pile of bullish fundamentals as we head into the rest of this month and 2014.
Again, why would we expect GOFO to be negative. To make a long story short...physical gold is scarce.
- The GLD has been drained by over 500 metric tonnes YTD.
- The Comex has been drained of another 75 mts YTD.
- China has "officially" imported 1,260 mts through October. (http://www.zerohedge.com/news/2013-12-08/china-october-gold-imports-surge-second-highest-ever)
- And now JPMorgan is sucking up what gold remains at The Comex, stopping to their HOUSE account 96% of the gold deliveries made thus far in December. (http://www.cmegroup.com/delivery_reports/MetalsIssuesAndStopsYTDReport.pdf)
So, in what should come as no surprise, GOFO rates declined sharply all last week and finally turned negative again today. You can find the data here: (http://www.lbma.org.uk/pages/?page_id=55&title=gold_forwards&show=2013) But it looks like this:
DATE 1-mo 2-mo 3-mo 6-mo 12-mo
29-Nov-13 0.07167 0.09167 0.10500 0.13333 0.16333
02-Dec-13 0.06667 0.09167 0.10500 0.13333 0.16333
03-Dec-13 0.06000 0.08333 0.10000 0.13500 0.16500
04-Dec-13 0.05833 0.07500 0.09500 0.13000 0.16500
05-Dec-13 0.03500 0.04833 0.06000 0.11333 0.14833
06-Dec-13 0.00667 0.01500 0.02833 0.08000 0.14500
09-Dec-13 -0.02000 -0.00333 0.01000 0.06167 0.13167
As a reminder, negative GOFO means this:
"A negative GOFO rate means that gold in hand today is worth more than U.S. dollars in hand. Think about that the next time someone tries to explain to you why gold has no value. This is a sophisticated transaction being executed by sophisticated banks. They are not in the business of leaving money on the table for others. If they are willing to pay money to get their hands on gold, it means they are placing a higher value on gold than on dollars. That's just the law of the time value of money in action."
Again, prior to 2013...BEFORE THIS MASSIVE, COORDINATED, COUNTER-INTUITIVE AND CARTEL-DESIGNED BEATDOWN SCHEME...negative GOFO was extremely rare. It occurred for two days in 1999, two days in 2001 and for three days at the height of The Great Financial Crisis in 2008. GOFO then went negative again on 7/8/13 and stayed there for 40 trading days. Over that time, which coincided with JPM hoarding July silver AND August gold Comex deliveries, the price of gold rallied over 17%, from $1221 to $1434. GOFO turned negative again during the October delivery month and stayed there for 15 trading days from 10/16 - 11/5. During that time, gold only rallied 8.45% from $1254 to $1360. Note that on both occasions, gold rallied, on average, about 2% per week while GOFO was negative.
So, here we are again.
- Negative GOFO tells us that physical gold is temporarily(?) scarce.
- Sentiment is terrible and nearly every pundit and "analyst" is telling you to sell.
- The CoT structure is even more bullish than it was at the June price bottom.
- The BPR structure is similarly more bullish than at any time on record.
It sure sounds to me that we are set up for some MOASS. If the pattern from July-August and October-November holds, we should see gold rally about 2%/week as long as GOFO is negative. And with the record Spec short positions, even 2%/week is likely a very conservative estimate. What does this mean? Well, provided GOFO stays negative, and I expect it to, we will see:
This week: Gold to rally toward $1255-$1260. Note the chart below that shows clear resistance there.
Next week: Resistance breaks and gold rallies another 2% toward $1285-$1290.
End of 2013: Gold continues to rally and finishes the year pressed up against our old friend, $1320.
Silver will, of course, come along for the ride. It will rally, too, and finish the year near $22, just like I've told you for weeks.
Note that gold has broken it's down trendline and is clearly basing/bottoming. Silver is now trending higher.
Two other updates before we close for today...
Crude continues to rally and The Pig continues to slide. I expect this general trend to continue, too. By holding these gains, crude will next challenge $99-$100 and The Pig looks like it's ready to fall toward the 79.75 region.
That's all for now. More in the podcast later.