Another Review of GOFO and Gold Price

39
Wed, May 28, 2014 - 12:10pm

As you know, we've been monitoring this since last summer. The trend continues and the effect on price is obvious.

As we begin, let's first review. Remember that negative GOFO essentially means gold in the hand is more valuable than dollars in the hand or, put another way, holders of physical gold are reluctant to offer their gold out for lease in exchange for dollars. This makes negative GOFO a signal of extreme physical tightness, particularly in London and for the standard, 400-ounce, London good delivery bars.

The LBMA publishes historical records of GOFO rates going back to 1989. In reviewing this information, we find that negative GOFO is a very rare occurrence. In fact, of all the market days between January 1989 and July 2013, GOFO was only negative for seven days total. Considering that's about 6,000 days, being negative for just 7 equates to about 0.117% of the time.

Of course, we all know what has happened lately. In a desperate attempt to MOPE their way through the current quantitative easing madness, the Central Banks have enforced a counter-intuitive raid on the price of gold since October of 2012, driving price down from $1800 to a low of $1180 on June 28, 2013. This extreme and desperate move only served to increase global demand for physical metal and, not surprisingly, has depleted the availability of metal in London. Remember what Ken Hoffman of Bloomberg Industries told us last December:

So, in hindsight, it should not have been surprising when GOFO flipped to negative on July 8, 2013 after being positive every day since November 24, 2008. It should also comes as no surprise that negative GOFO is now the norm, not the exception. In fact, since the price bottom at $1180 on June 28th of last year, there have been 229 market days. Of those days, GOFO has been negative for 133 of them or 58% of the time! GOFO has been in positive territory just 42% of the time or 96 days. Again, you must note that for the previous 24.5 years, GOFO had only been negative for just 7 days. Now, after the massive and counter-intuitive price slam, it's negative nearly 60% of the time?!?

<It's important to note here that some Cartel apologists have written that this can all be explained by low interest rates. If that's the case, why has the Federal Reserve policy of "ZIRP" been in place since 2009 yet GOFO only went negative in July of 2013?>

And here's another curious item...GOFO rates in London have a clear tendency to flip negative during Comex delivery months in New York. Now why would that be? I'm open to hearing any explanation outside of "extreme physical tightness". If you can come up with one after reviewing the chart below, please post your theory in the comments section.

So, here's your updated chart. The green rectangles denote periods of negative GOFO and higher prices. The red rectangles denote periods of positive GOFO and lower prices. The black rectangles at the top of the chart denote Comex delivery months and the numbers in the bubbles denote overall price change for each period.

Cumulatively, during the five periods of negative GOFO, price has risen 6 for an average move of .20. For the four periods of positive GOFO, price has fallen 4 for an average of .50. Given this clear correlation, it should come as no surprise that GOFO, after being negative for nearly six weeks from April 3 to May 19, flipped back to positive on May 20. In the six market days since, the price of gold has declined by from 94 to the current 58.

What's ahead? Clearly, more price weakness. As long as GOFO remains positive, there is plenty of leasable gold available for the bullion banks to utilize in raiding price. However, deliveries of June Comex gold begin on Friday of this week so we can be relatively certain that GOFO will be flipping back to negative sometime in the next two weeks. Once it does, the current selling pressure will abate and price will begin to recover.

An average positive-GOFO move of would drop price back toward 30. An average negative-GOFO rally of in June/July would then push price back higher toward 00 and the all-important red trendline on this chart:

Again, these are just averages and I'm not predicting an imminent drop to 30...though that's only from here. The point of this is to remind you again of the clear, current correlation of GOFO with price trend AND, more importantly, remind you again of The Big Picture:

"You could go into a vault in London a couple of years ago and they were packed to the rafters with gold and the gold would trade from me to you to somebody else. You can walk in those vaults today and they're virtually empty. All the gold has been transferred out of London. 26,000,000 ounces has gone to Switzerland where it's been recast into a higher grade and shipped off to Hong Kong and then into China, never to return. So the most interesting thing, especially as we look into 2014, is if there ever is interest in gold again, and I'm not saying there is or isn't, that gold is just not there anymore."

--- Ken Hoffman, Head of Metals and Mining for Bloomberg Research on Bloomberg Television, December 13, 2013

I remain convinced that the "new normal" of negative GOFO is, in fact, symptomatic of extreme physical tightness and empty vaults in London. Knowing this and the clear correlation of GOFO with price, you should adjust your trading strategies accordingly. For those of us who are stacking only, persistently negative GOFO is just another clue that the end of the fractional reserve bullion banking system is near. Whether or not that "end" comes in 2014 or 2015 matters little. It is coming, regardless, and we should continue to look at these manipulated and suppressed prices as one last gift from the soulless central bankers who have plundered our national treasure and set our posterity on a course of permanent debt enslavement.

TF

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turd [at] tfmetalsreport [dot] com ()

  39 Comments

May 28, 2014 - 12:11pm

fwiw

Because of the urgency of the message regarding GOFO and price, I'll likely make this a public thread and send it over to Chris Powell sometime late tomorrow or Friday.

May 28, 2014 - 12:18pm

more fwiw

I recorded this with Kerry last Friday and it goes deeper into the discussion regarding physical tightness, price trend and sentiment.

https://financialsurvivalnetwork.com/2014/05/turd-ferguson-the-emerging-...

May 28, 2014 - 12:21pm

And I guess we can add Russia

And I guess we can add Russia and China to the growing list of "concerned" nations:

https://www.zerohedge.com/news/2014-05-28/putin-says-russia-china-need-e...

CPE
May 28, 2014 - 12:22pm

Turd

Question on GLD: I believe GLD is a complete and total fraud, and in your great podcast yesterday you went over your way of looking at things in acknowledging the fraud/manipulation. In that light, what do you make of GLD increases or decreases in “inventory”?

Please forgive this leading question, but I’ve been thinking about that “inventory” and believe it’s just a book entry in a fractionally reserved LBMA. Since the vaults are empty, how does this “inventory” affect GOFO or fund the physical drain during slam downs? Does the 8.39 tons in additional “inventory” mean that JPM covered a bunch of ETF shorts since ETFs can mechanically have more shorts than longs outstanding? I just wonder how the shuffling works and if maybe anyone knows other than the fraudulent custodian? I’m guessing that an increase in inventory is closed out shorts that are really no real increase in inventory but just a way for JPM to balance books between scams. Then they add more shorts to disgorge more “inventory” but this cleans out more physical bars or leased gold…

What do you think?

Chuck Diesel
May 28, 2014 - 12:36pm

Re: Ken Hoffman Bloomberg Interview

Was there ever any follow up with Ken after this Bloomberg interview about how he knows that the "gold is just not there anymore"? As a PM analyst, he knows full well the power of this statement, so I have to believe his source of information is either first-hand or very credible.

May 28, 2014 - 12:38pm

And I apologize for

And I apologize for continually pounding this drum but there are only two possibilities:

  1. Gold must rally and catch up to the Long Bond
  2. Rates must reverse and skyrocket so the the Long Bond falls toward gold

It's one or the other.

Chuck Diesel
May 28, 2014 - 12:39pm

Not that I know of

Ned gave me his email address but he hasn't responded to my requests.

Bollocks
May 28, 2014 - 12:45pm

Turd took

first, second, third, sixth and seventh.

Outrageous. I want my money back!

CPE
May 28, 2014 - 12:46pm

Yes, I think you are right on

Same with SLV.

NO WAY that it's logistically possible for all of this to be physical metal shuffling. Simple paper receipts etc.

As to yesterday's addition to "inventory"...Very likely just a covering of a previous short sale and we've seen this a few times earlier this year. Whether or not its an actual addition of physical metal hardly matters as it will likely be shuffled right back out in a few days.

For example, the GLD added 7.49 mts on 1/17/14 and it was all gone by 1/23/14. It also added 7.50 mts on 2/13/14 and it was all gone by 2/19/14. Lastly, it added a total of 8.69 mts over 3/20 and 3/24 and it was all gone by 3/31.

Yesterday's 8.39 mts addition will very likely meet the same fate by sometime next week.

CPE
May 28, 2014 - 12:52pm

RE: Yes, I think you are right on

Thanks!

At least all my descendants will be happy paying down the debt mountain that we built trying to save such a wonderful system. I mean obviously Too Big To Fail banks are the reason they have bread on the table right?

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