Plunging GOFO Rates

Mon, Apr 14, 2014 - 1:29pm

As expected, London gold forward rates are plunging again during the New York Comex delivery month. In the recent past, this signal of tight physical supplies has correlated with higher prices. So, are we on the verge of another rally?

Longtime readers will recall that we first identified this phenomenon back in October of last year so you can start today by reviewing this:

We wrote about GOFO again in December:

And the pattern really began to assert itself in February and March of this year. Please be sure to review this link before continuing:

The most recent post on this subject is here:

Again, the most simple way to describe negative GOFO is this: Gold in the hand is more valuable than dollars. Stated another way, current holders of physical gold prefer to hang onto it rather than exchange it for dollars. This desire to hold gold closely means that readily-leasable gold is scarce and, without a constant supply of leasable gold, the bullion banks have great difficulty in "raiding" price.

This can be seen on the chart below. Since negative GOFO became the new normal in July of last year, the is a clear correlation between negative GOFO and rising prices. There is also a clear pattern of positive GOFO and falling prices. (Click the chart to expand it. Green rectangles are periods of negative GOFO. Red rectangles are periods of positive GOFO.)

And why is negative GOFO the "new normal". I contend that Asian physical demand through the counter-intuitive paper price smash that was orchestrated in 2013 has greatly depleted the supply of leasable, Western central bank gold. The anecdotal evidence of "empty vaults" provided in the links below is revealed as accurate by the GOFO rates, which were only negative for seven days from 1/1/89 - 7/5/13 but have been negative for 107 of the 194 days since, or 55% of the time.

Also note that periods of negative GOFO align with the Comex delivery months of August, October, December, February and now April. Can this be simple coincidence? I don't think so and this allowed us to accurately predict a return to negative GOFO this month.

As a price predictor and trading tool, all of this is proving quite helpful. Gold closed at $1290 on April 2. The next day in London, the one-month GOFO rate flipped to negative and it has moved deeper into negative territory since. In fact, the two-month and three-month rates have also plummeted and the six-month rate is nearly negative today as well. Not surprisingly given recent history, price has rallied in the days since, to a high earlier today over $1330. Clearly, if GOFO rates continue to decline or, at a minimum, stay negative, there is no reason not to expect a further rally in price.

In The Vault, we'll certainly watch this now-proven indicator very closely in the days ahead. If you'd like to follow along, the rates are updated daily and can be found here:


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Apr 15, 2014 - 6:02pm

I suppose we can never know why Ruppert killed himself

But, it stands to reason that the research he did for his movie "Collapse" may have gotten to him. Another movie comes to mind: "No Way Out."

Apr 15, 2014 - 10:36am

Michael Ruppert passing

The news of Michael Ruppert's reported suicide sent chills through me. Collapse shook me up good in early 2010 and played a big part in setting me onto the path of prepping and overstanding the massive paradigm shift that's underway. Even if I don't agree with his angle on all of the topics he covered, generally the awareness that Collapse touched off has over time led me to an entirely new state of mind in rejection of previous "progressive" programming. I owe Mike a big thank you for that alone. It saddens me that he apparently took his own life, may his spirit find peace.

Apr 15, 2014 - 10:13am

@Robski: Thank You

Thanks for linking to "Collapse".

Mr. Fix
Apr 15, 2014 - 10:01am

On Latest Furious Slamdown

Gold Futures Halted Again On Latest Furious Slamdown

Submitted by Tyler Durden on 04/15/2014 - 09:30

  Image cannot be displayedIt seems the two words "fiduciary duty" are strangely missing from the dictionary of the new normal's asset management community. This morning, shortly before 8:27am ET, someone decide that it was the perfect time to dump thousands of Gold futures contracts worthover half a billion dollars notional. This smashed Gold futures down over $12 instantaneously, breaking below the 200DMA and triggered the futures exchange to halt trading in the precious metal for 10-seconds. Palladium also got clobbered and was also halted. This is gold's worst since Bernanke 'tapered' in December.

TF Metals fan
Apr 15, 2014 - 8:26am

celebration of the big dip......

Well, it seems to me that some people like to recelibrate the big dip of last year in a similar fashion. So let us trust in The Force (go go go GOFO rates!!!!!!)

TF Metals fan
Apr 15, 2014 - 8:25am

celebration of the big dip......

Well, it seems to me that some people like to recelibrate the big dip of last year in a similar fashion. So let us trust in The Force (go go go GOFO rates!!!!!!)

I Run Bartertown
Apr 15, 2014 - 8:10am

If today were May 1

Sure, we'd see nasty Commies celebrating May Day and their victory over all that society once held dear,

BUT, we'd also see that:

Tjeffson would win with a guess of $3.50 melt value for a Washington quarter.

Ancientmoney would be second with a gallon of gas currently averaging $3.64. The quarter is $3.56 currently...

The ham is divine....err, edible...if you cook it first and don't smell it before doing so.

  Image cannot be displayed

The hat? We shall see.

  Image cannot be displayed

Apr 15, 2014 - 5:12am

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El Gordo
Apr 15, 2014 - 12:39am

Just wondering

If the evil JP Morgue and the undertaker Blythe Masters are going to be factored out of the equation, are the remaining players sufficiently schooled in the art of deceit and manipulation to carry forward the scams that have been fostered upon us for the past several years? If the government (Fed) is the major manipulator and has been using the Morgue as merely a place to fence its paper manipulations, how long will it take them to find someone else and get them up to speed? Lastly, if there are no longer domestic commercial banks facilitating the frauds, but rather banks in some place like Belgium, will it be more difficult to trace or follow the bouncing ball? I guess the real question is will the game remain the same or are we looking at a new game with a new set of rules coming on stream?

Nigel Black
Apr 14, 2014 - 11:26pm

RIP Michael

You helped wake me up too. I will always remember you for that.

Be at peace, my friend.

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