Plunging GOFO Rates

23
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: https://www.tfmetalsreport.com/blog/5155/gofo-yourself

We wrote about GOFO again in December: https://www.tfmetalsreport.com/blog/5311/yah-wellgofo-yourself

And the pattern really began to assert itself in February and March of this year. Please be sure to review this link before continuing: https://www.tfmetalsreport.com/blog/5530/negative-gofo-and-rising-gold-p...

The most recent post on this subject is here: https://www.tfmetalsreport.com/blog/5627/more-gofo-mofo

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.

https://www.bloomberg.com/video/what-s-happening-to-all-the-gold-d33u1c2...

https://www.ingoldwetrust.ch/alex-stanczyk-physical-supply-never-been-ti...

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: https://www.lbma.org.uk/pricing-and-statistics

TF

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  23 Comments

codesurfer
Apr 14, 2014 - 1:34pm

GOFO

Number 1

Keep Stacking

Deaglán
Apr 14, 2014 - 1:35pm

Yeehah

Thanks Turd

Have a nice Easter!

cliff 567
Apr 14, 2014 - 1:35pm
ivars
Apr 14, 2014 - 1:38pm

This 3 years GSR channel

This 3 years GSR channel seems to hold more information then silver/gold prices themselves. Is it not time for GSR to overshoot the channel once again as it has done in the past? To higher values, I mean, which in general would mean lower PM prices to some time.

metalsbyamile
Apr 14, 2014 - 1:47pm

Again

with the sith er sixth.

July is just around the corner.

CPE
Apr 14, 2014 - 1:50pm

Buy Gold and Pay your Gazprom Bill

Turd,

You might want to put a TFMetals Report logo on that chart since this is a "freebie" post...

Swift Boat Vet
Apr 14, 2014 - 2:21pm

Hey Turd !

What do you think of this predictor ?

If / when the GOFO rate becomes negative in a non-delivery month and stays there for days/weeks, the 'breaking' of the paper gold manipulation might be coming soon. That sure sounds logical to me.

Please comment Turd and and Turdites.

Swifty

Apr 14, 2014 - 2:23pm

Charts

This is just another version of the GOFO chart. Note the decline in GLD inventory since the near-term gold price bottom at the beginning of this month:

@ivars -- while your GSR channel does indeed seem intact and rising, it's good to look at some context as well:

https://goldprice.org/gold-silver-ratio.html#36_year_gold_price

It seems stock market crashing sends GSR way up, but silver rally sends it down justasquick. I suppose we'll see if things are any different this time around, one way or the other...

Verus nemo
Apr 14, 2014 - 3:16pm

I've been thinking the same thing, Swift Boat Vet

I suspect that we'll continue to see this GOFO vascillation between positive (non-delivery month) and negative (delivery month) at least through the summer months. If the East's take of western gold continues apace, however, I look to see precisely the scenario you envision occurring later this year or in the first half of 2015.

I have been studying these GOFO numbers since last summer, when I first learned of them from Turd. I actually knew of their existence earlier as FOFOA mentioned them in reference of the gold lease rate and again slightly later when it was revealed that the LIBOR numbers were manipulated. I was surprised to learn that while LIBOR had been manipulated both up and down, it was when it had recently been manipulated down that it was resulting in increasingly negative GOFOs.

What really caught my attention, however, was what was reported on July 31, 2013. The GOFOs were negative on the first four periods out (1, 2, 3, and 6 months) but not dramatically different from just days earlier or later. Instead, what caught my eye on that date was the *huge* increase in the gold lease rate. In other words, the LIBOR and GOFO rates effectively "masked" what was going on in the behind-the-scenes gold leasing market, I presume between the central banks and the boullion banks, but perhaps too between the BB's and the oil exporting nations.

Since the freegold theory holds that gold and oil never flow in the same direction, and even "Paul" addresses at his excellent YouTube channel this mechanism wherein oil exporting nations acquire a portion of their receipts not in fiat but rather gold (see: https://www.youtube.com/watch?v=YbKEwAXuiYM&list=PLRruihFm5Xp-LF6pkNqxef...)

I have been wondering if we weren't in fact seeing a rejection of the USD$ as petrodollar clear back on July 31, 2013 and whether we'll see it again soon? Do note that while we can "see" the daily GOFO numbers each morning, we aren't able to readily "see" that day's set LIBOR rate or the gold lease rate. They become visable a week later.

None of this detracts from Turd's identification of negative GOFO's serving well as trading signals; he is right on the mark there! But I do wonder if, in our excitement over GOFO rate moves, if we're not losing sight of an even more important signal-----that of the rejection of the USD$ and our petrodollar status as evidenced by a sharply rising gold lease rate?

I'll try to post the LIBOR, Gold Lease Rate, and GOFO numbers for the period of 25 JUL 2013 through 07 AUG 2013 so that you can see for yourself how dramatic the rise in the lease rate was. I am having difficulties getting them to c&p into this post at the moment...

fatjohnJ Y
Apr 14, 2014 - 3:44pm

This is very interesting

This is very interesting thanks.

i would like to draw your attention that the second derivative of the GLD curve becomes positive when GOFO goes negative.

In non-mathematical terms, when GOFO is negative, the trend in GLD inventory starts curving upwards. Previously this meant that the inventory started decreasing at a slower and slower rate, but after a couple of cycles of negative GOFO the inventory is starting to increase!

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