Are We Getting Close?

Thu, Nov 6, 2014 - 10:59am

We've all been waiting for years for the connection between paper and physical prices to break. With this latest, Spec algo-induced selloff, are we finally getting close? Some signals are there, not the least of which are the GOFO rates, which have fallen to their most negative levels in over 15 years.

Longtime readers know that we've been all over this GOFO story since rates first turned negative in July of 2013. After having been negative for just 7 days out of the previous 24.5 years, London Gold Forward Offered rates (GOFO) moved sharply negative following the unprecedented drop in price to $1180 in late June of 2013. Rates then remained negative for the next eight weeks before beginning a period of oscillation between positive and negative.

Over the past 16 months, the one-month GOFO rate had been as low as -0.12167% on 8/22/13 and as high as +0.1520% on 9/17/14. Then, earlier today, the one-month rate was posted at -0.1850%. Again, this is the lowest of the entire period that began last summer and the lowest reported one-month rate since the two-day spike down in GOFO that occurred near the announcement of The Washington Agreement on gold in late September of 1999. Additionally, GOFO rates are now negative out to six months. This has only occurred on 14 days since this period began in July of 2013, the last being in early May of this year.

As you might expect, ZeroHedge has printed an excellent summary of the situation and you can find it here:

So, what does this mean, if anything?

What is undeniable, based upon the definition of forward offered rates, is that there is currently a shortage of readily-leasable London gold bars. Negative GOFO indicates that supply is so tight that, instead of a "normal" situation where gold is used as collateral to borrow dollars, dollars are being used as collateral to borrow gold. Our pal, DenverDave, explained this in English better than anyone else when he wrote this back in July of 2013: The important paragraphs are reprinted below:

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.

In short, the GOFO is the interest rate that is used in a gold-for-dollars swap transaction. Someone who is long gold and needs dollars for short term use can use his gold as collateral and get a much lower interest rate in borrowing the dollars. But when the GOFO is negative, it means that someone with dollars needs the short term use of gold and is willing to pay the owner of the gold a rate of interest plus use dollars for collateral.

What it really means is that the massive shortage of good to deliver 400 oz. bars we've been hearing about in Europe, Asia and the Middle East is true. It tells us that not only is delivery situation for 400 oz bars extraordinarily - maybe historically - tight, BUT the western Central Banks are having problems finding enough gold to alleviate the situation.

In Dave's column from 16 months ago, he incorrectly presumed (as did I) that this was a sure signal that the correction within the bull market was over. With hindsight, we clearly can see that it was not. That's not the point. What IS the point is that he was fundamentally correct. A GOFO regime that had flipped negative for the first time in years and then remained there roughly 50% of the time going forward IS A SIGNAL of incredible physical tightness.

"So Turd, you dumbass, how come gold keeps going down?"

This gets back to THE IMPORTANCE of the current time. Price did recover last year. It also recovered on several occasions earlier this year. However, each time price threatened to break out and resume it's UP trend, it was savagely beaten back lower by a Bullion Bank Cartel determined to depress sentiment and western physical demand. Since June, the Spec algos have taken the bit and have driven price down over $200 by electronically pegging paper gold to the falling Japanese yen.

And now look at what has happened. London is currently so devoid of readily-leasable 400-oz bars that the GOFO rate is negative out to six months. Gold must now be dislodged and made available at these prices or the connection between physical and paper price...already frayed from years of abuse...will finally break. This is NOT to say that the break is imminent or certain at this price level. However, it is undeniably clear that the current drop, fueled by momo-chasing specs that are programmed to tightly follow the yen, has put incredible strain on the physical settlement system.


So watch this all very closely in the days ahead. As I've mentioned repeatedly over the past few days, if and when you see the current, direct correlation between the yen and gold break, you'll know that The Banks have finally had enough and they've begun to squeeze The Specs. The price at which that happens will be your new AND FINAL bottom. Could that happen today? Yes. Could it be tomorrow following an extreme algo over-reaction to the BLSBS? Yes. The point is that all signals indicate that this moment is coming. Soon.

I know it's painful to watch but these are extraordinarily interesting and important days. Rest assured knowing that you've already protected yourself from financial calamity and that your personal stack of physical precious metal has never been more valuable.


About the Author

turd [at] tfmetalsreport [dot] com ()


Nov 6, 2014 - 11:00am

public post

I plan to send this over to GATA and the other usual outlets tomorrow.

Nov 6, 2014 - 11:03am



Nov 6, 2014 - 11:04am


we are close!

Nov 6, 2014 - 11:05am

War resumes in The Donbass

Our pal, SilverSooner, has been warning for days that this was coming.

Here's his tweet from earlier, before the ZH link was posted:

Nov 6, 2014 - 11:09am

And, again

The resumption of WAR in Ukraine has very little impact. Neither do GOFO rates. Why? "It's all about that yen, bout that yen. No fundo."

When this breaks, however...and if GOFO keeps falling it will break'l know we've finally found our bottom where physical and paper disconnect.

Nov 6, 2014 - 11:12am


tomorrow is the BLSBS employment report which, as we know, is a favorite time for Comex gold and silver bombing raids. Personally I'm waiting to see the reaction (in gold/silver/PM stocks) to that report before I get too excited. Just too tired of trying to catch falling knives

Nov 6, 2014 - 11:13am


First - not

Nov 6, 2014 - 11:30am

Please take some time to

Please take some time to consider how fortunate you are to live in a place where this is NOT going on outside your window:

Sound Money Minnow
Nov 6, 2014 - 11:33am

Thinking the bottom is in

But not betting the farm on it. Everything I see makes me believe this, but who can know considering the current price action. I have contemplated doubling down, but it is really a casino trade right now, and the house always wins. May those that adhere to sound money principles be blessed. True fair weights and measures is biblical.

Nov 6, 2014 - 11:38am

jnug time?

What do u think gamble?

Nov 6, 2014 - 11:41am

Check out fannie mae


The chart looks like a direct chart of the market overall....2013 it rapidly rises as the fake numbers, BS, and funny munny rally takes hold....and then it slowly rolls over the last 6 months, looking like it is about to fall out of bed this or the next month...

Fannie Mae is so contrived it is a joke. No capital, no product, just a government created middle man for facilitating crappy bank loans. But hey, they made Robert Rubin and Franklin Raines rich ( among many old Clinton flunkies)...when it breaks ....which looks soon....its up. over. 2008 all over, with Jacob Lew and Yellen explaining to the (snicker, snicker) fiscally conservative republicans how bail-ins are fair to Americans...

Looks to me like we late Summer, 2008, now....difference this time, is PMs will be bought, not sold. When two goes, then 1.5, then 0

Nov 6, 2014 - 11:54am
Dyna mo hum
Nov 6, 2014 - 12:03pm
Nov 6, 2014 - 12:06pm

What Gets Me Is:

I thought they (the Banksters) were not going to publish the GOFO rates anymore? I keep thinking ploy as I don't trust them and so why are the GOFO Rates still up?? Keep Stacking.

Nov 6, 2014 - 12:11pm

As promised...

Why not compile a LCS report.

Please post a brief report here on a forum page each time you stop in a dealer.

If we compile them, I believe we'll have an important indicator of what is really going on among our class of buyers.

With enough posts covering four data points below, regularly, repeatedly, perhaps we can construct a meaningful picture of supplies nd premiums at the retail level.
For both gold and silver...

  1. Are inventories increasing or decreasing?
  2. Premium on minted coins?
  3. Premium on bars & rounds?
  4. Where are you?

I'll copy and paste any LCS reports that get posted on the main pages (starting with yesterday's posts) as I run across them, and I'll try to post graphs and charts on main street as I create them.

Nov 6, 2014 - 12:12pm

Well Thanks Too All these Cartel Games I am left with no Choice!

But to by 150 more ozs. One tube of ATB's Smoky Mtn, One Tube Everglades, and one tube Shanandoah

Thanks for the fire sale Cartel!!

Nov 6, 2014 - 12:19pm

@Minnow, thanks for the

@Minnow, thanks for the reminder...

"Discrepant weights and discrepant measures, both are despised before Lord Jehovah." Prov 20:10


"Use honest scales and honest weights, an honest ephah and an honest hin. I am the LORD your God, who brought you out of Egypt" Lev 19:36

Nov 6, 2014 - 12:28pm

FYI - Thoughts on Japan

How The Japanese Economy & Financial System Will Implode

The Japanese central bank (the Bank of Japan) shocked markets last week when they announced they will be increasing the size of their current quantitative easing program. They will increase the amount of money they are printing monthly to 80 million yen, which is equivalent to 700 billion US dollars.

Nov 6, 2014 - 12:29pm
Nov 6, 2014 - 12:32pm

CME Group: lawsuit

Lawsuit: Chicago Futures Market Creates “Guaranteed Winners and Guaranteed Losers”

By Pam Martens: November 6, 2014

"Last week lawyers for the plaintiff traders filed a Memorandum of Law to ward off efforts by CME Group’s attorneys to have the case dismissed for lack of specificity. Citing a case known as U.S. v. Snow, the plaintiffs respond that “conspiracy by its very nature is a secretive operation, and it is a rare case where all aspects of a conspiracy can be laid bare in court with … precision.”) Notwithstanding that, many of the charges laid before this court have been quite detailed and named names, such as the following:

“Defendants have entered into clandestine incentive/rebate agreements in established and heavily traded contract markets with favored firms such as DRW Trading Group and Allston Trading, paying up to $750,000.00 per month in one of the most heavily traded futures contracts in the world. At no time during the Class Period have Defendants voluntarily revealed to the trading public that these material agreements exist in established markets. Defendants through their lawyers have repeatedly ridiculed the suggestion that clandestine agreements exist.”

Gamble b72s
Nov 6, 2014 - 12:34pm

B , it's gamble time

Picked up some jnug yesterday ! Gonna look to add tomorrow maybe !

Little nervous though I think the cartel has one more bullet to use than that's it , just don't really know when

gamble gamble

stay strong dr p we are closer to the other side!

A. Tad Askew SamSchlepps
Nov 6, 2014 - 12:37pm

Japan QE

It's 80 TRILLION yen! That's a lot of noodles, baby!

Nov 6, 2014 - 12:47pm

Swiss Referendum

The Swiss Referendum has gotta be playing a big role in the gold price crush. That Swiss National Bank must prove to the Swiss people before the end of November that gold is, beyond a reasonable doubt, worthless garbage, way too risky, and bad stuff to own.

Tough task b/c for years all the Swiss have been doing is work 24/7 making 9999 gold bars to ship around the world. Deep down they must be thinking what in the hell is going on with gold.

So, IMHO gold goes down hard for the next 3 weeks to move the referendum vote.

A predition - GSR (now at 74.4) will run to about 83 before all is said and done, then drop like a rock.

Nov 6, 2014 - 12:49pm

SamSchlepps "They will increase the amount of money they are printing monthly to 80 million yen, which is equivalent to 700 billion US dollars"

Err, no, it's 700,000 US dollars.


edit: it's 80 trillion they're printing? Ok then, it's 700 billion.

Shit, that's a lot. Surely they can't be printing that much each month??

Nov 6, 2014 - 1:23pm

Some countrys gold stash

Some as yet unknown countrys gold stash is probably going to find itself being on the receiving end of some freedom & democracy in the coming days, that will settle the GOFO problem for a few more months more, JMHO

Nov 6, 2014 - 1:27pm

Climbed the wall.

Just renewed my subscription which expired in July. I couldnt stand not being able to read the vault posts any longer! I had to climb the wall and its great to be back on the other side!

Nov 6, 2014 - 1:30pm

Japan QE in US terms

needs to be considered by GDP, which I believe is closer to increasing the old QE in the US of $80 billion a month to $240 B a month or $3 trillion a year....that's a lot a sake, as my old sensei used to say....

Nov 6, 2014 - 1:30pm


For the first time ever I'm rooting for a price smash. I think The Swiss vote may have a lot to do with this and I hope the algos keep smashing and control is lost to the downside only sending GOFO to unreal negative rates and breaking the entire market for even the dumbest to see and hopefully, in the greatest irony, it all breaks days before the vote.

James Crighton TF
Nov 6, 2014 - 1:33pm

Swiss gold initiative - Bitcoin

Great job Peter Schiff - have sent some bitcoin to the address you give at the end of your presentation:


Hope the good people of Switzerland show the rest of the World the path to sound money and the consequent PEACE and prosperity.


Nov 6, 2014 - 1:37pm

S B Horse

Yes it does ! Great pic. Many family memories visiting the smokies with my parents and now my children as well. Beautiful part of the world ...


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