A Historic Inversion: Gold GOFO Rates Turn Negative For The First Time Since Lehman

Tyler Durden's picture

Today, something happened that has not happened since the Lehman collapse: the 1 Month Gold Forward Offered (GOFO) rate turned negative, from 0.015% to -0.065%, for the first time in nearly 5 years, or technically since just after the Lehman bankruptcy precipitated AIG bailout in November 2011. And if one looks at the 3 Month GOFO, which also turned shockingly negative overnight from 0.05% to -0.03%, one has to go back all the way to the 1999 Washington Agreement on gold, to find the last time that particular GOFO rate was negative.

Before we get into the implications of this rather historic inversion, let's review the basics:

What is GOFO (Gold Forward Offered Rates)?

GOFO stands for Gold Forward Offered Rate. These are rates at which contributors are prepared to lend gold on a swap against US dollars. Quotes are made for 1-, 2-, 3-, 6- and 12-month periods.

Who provides the rates?

The contributors are the Market Making Members of the LBMA: The Bank of Nova Scotia–ScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA London Branch, Goldman Sachs, JP Morgan Chase Bank, Société Générale and UBS AG.

When are the rates quoted?

The means are set at 11 am London time. These are the rates shown on the LBMA website.  To show derived gold lease rates, the GOFO means are subtracted from the corresponding values of the LIBOR (London Interbank Offered Rates) US dollar means.  These rates are also available on the LBMA website.

How are the GOFO means established?

At 10.30 am London time, the Reuters page is cleared of all rates. Contributors then enter their rates for all time periods. A minimum of six contributors must enter rates in order for the means to be calculated. At 11.00 am, the mean is established for each maturity by discarding the highest and lowest quotations in each period and averaging the remaining rates.

What are some uses for GOFO means in the market?

They provide a basis for some finance and loan agreements as well as for the settlement of gold Interest Rate Swaps.

* * *

Unpleasant similarities with Libor and most other fixed (literally and metaphorically) rates aside, what is known is that under normal market conditions, GOFO is always positive, or in other words gold serves as a money-equivalent collateral for a pseudo-secured loan against paper fiat (USD in this case) hence the low interest rate.

Sometimes, however, normality inverts and the rate goes negative and as such serves as a useful indicator of gold market dislocations. Thus, while disagreements exists, one can safely say that what GOFO is, is simply a blended indicator of liquidity, counterparty or collateral (physical availability) stress in the gold market. Since it is next to impossible to isolate just which component is causing the indicated disturbance, it is prudent to be on watch for all three.

The best known example of a complete collapse in the GOFO rate, is the September 1999 Washington Agreement on Gold, which in brief, was an imposed "cap" on gold sales (mostly European in the afteramth of Gordon Brown's idiotic sale of UK's gold) to the tune of 400 tons per year. The tangent of the Washington Agreement is quite interesting in its own right. Recall the words of Milling-Stanley from the 12th Nikkei Gold Conference:

"Central bank independence is enshrined in law in many countries, and central bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement...At the same time, through our close contacts with central banks, the Council has been aware that some of the biggest holders have for some time been concerned about the impact on the gold price—and thus on the value of their gold reserves—of unfounded rumours, and about the use of official gold for speculative purposes.


"Several of the central bankers involved had said repeatedly they had no intention of selling any of their gold, but they had been saying that as individuals—and no-one had taken any notice. I think that is what Mr. Duisenberg meant when he said they were making this statement to clarify their intentions."

Of course, this happened in a time long ago, when the primacy of Fractional reserve banking was sacrosanct, when the first Greenspan credit bubble (dot com) was yet to appear, and when barbarous relics were indeed a thing of the past, only to be proven oh so contemporary following not one, not two, but three subsequent cheap-credit bubbles which have vastly undermined the religious faith in fiath and central banking, sending the price of gold to all time highs as recently as 2011.

Another subsequent negative GOFO episode occurred in early 2001, which coincided with what has been rumored to be a speculative attack and reversal of the futures market. However, while pushing 1 month rates negative, 3 month rates remained well positive.

Indeed, the only other time when both 1M and 3M GOFOs were both negative or almost so (3M touched on 0.05%) was in the aftermath of the AIG bailout following the Lehman collapse in November 2008.

Fast forward to today, when both 1M and 3M GOFOs just went negative.

And while both Antal Fekete and Sandeep Jaitly, traditionally two of the most vocal pundits in the arena of gold backwardation and temporal and collateral gold market arbritrage, are likely come up with their own interpretations of what may be causing this historic inversion, the reality is that one can't know for sure until after the fact. It may be one of many things:

  • An ETF-induced repricing of paper and physical gold
  • Ongoing deliverable concerns and/or shortages involving one (JPM) or more Comex gold members.
  • Liquidations in the paper gold market
  • A shortage of physical gold for a non-bullion bank market participant
  • A major fund unwinding a futures pair trade involving at least one gold leasing leg
  • An ongoing bullion bank failure with or without an associated allocated gold bank "run"
  • All of the above

The answer for now is unknown. What is known is that something very abnormal, and even historic, is afoot at the nexus of the gold fractional reserve lending market. 

h/t S Roche

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Spider's picture

If you are fed up with whats hapening in the PM markets then its time PM investors take back the PM markets.  Join the Silver Pledge - an effort to beat the banks at their own game by having investors join up and buy physical silver - together we can break this market.  You can read more here:


I think I need to buy a gun's picture

iN bEN wE tRUST!!!!


fourchan's picture

i dont give a fuck what the paper pushers are doing brothers, i'm stackin!

Lore's picture

Re: "Join the Silver Pledge...Put your name on our list...Rah Rah Rah!"

Loose Lips Sink Ships

AllThatGlitters's picture

If I'm reading correctly, this negative GOFO rate has been known since 10 or 11 London time?

So what has put the fire under gold and silver tonight?

Live Gold:  http://www.pmbull.com/gold-price/

Live Silver: http://www.pmbull.com/silver-price/

Although, the movement tonight seems to have started around the time that Tyler posted this article.

Is tonight's movement a headfake, or the beginning of a blast-off?

markmotive's picture

The diehards are still talking up gold big-time. It makes me wonder...have these guys lost touch or has everyone else?

Sprott interviews Jim Sinclair on gold:


NeverForgetSilver's picture

They will do it regardless the price since they know that the price is artificially set by government to convince poeple to sell.

Herd Redirection Committee's picture

Sprott has made moves into at least two silver juniors in the last couple weeks.  They now own more than 15% of Arian Silver (mine in Mexico, but have had a milling issue) for one.   And the price has been beat up hugely.  Not investment advice blah blah blah

new game's picture

long blinders and ear plugs-fuck sproot and sinclair-think for yourself-go to amazon if you want to buy a book...

gold is savings - end of story...

equity in home WAS savings

gold is now ONLY option left for true savings.

if the s(really does)htf, what do you want for savings?

paper anything? (except a$$ wipe).

equity in home that NO ONE can afford to purchase?

or GOLD???

now we are all experts!

GetZeeGold's picture




Do not screw with mother nature!


You have meddled with the primary forces of nature, Mr Beale. And you will atone.


Am I getting through to you, Mr Beale?

pmbug's picture

July 8 - rates negative out to 3 mo.

July 9 - rates negative out to 6 mo.

There's a nice post (with chart pr0n) here about the historical significance of these numbers:


CSA's picture

Neither... it is one step forward, two steps back until it normalizes.

DoChenRollingBearing's picture

FOFOA commented not really long ago that a negative GOFO (or "backwardation") might not be the "Yikes, this IT!" signal that Antal Fekete wrote before (2009?  earlier?).  Because GOFO tracks paper gold!


Cost of mining gold is the Cover Story in the new issue of American Hard Assets.  Lots of other interesting articles as well in the magazine.

"Review of American Hard Assets -- Issue No. 4"


mkkby's picture

All this means is nobody wants to borrow gold.  Since most of the action is in paper, that makes total sense.  It's a bear market in paper gold.  Hedge funds getting muppetized and bailing while they still have life left.  No mad max prediction needed. 

DoChenRollingBearing's picture

10-4 Jam Akin, but I have seen lots of this kind of moments, well, for many years...

Jam Akin's picture

Still is a good time now to be at higher state of readiness Do Chen!

spanish inquisition's picture

Speaking of drive by wire, anyone know if Canadian trains are fully computerized?

Maxter's picture

I heard that the brakes needs to be applied manualy on the first 10 car or so.

The locomotive was on fire 10 km away from the crash about 2 hour before the crash.  The firefighter neutralised the fire and left.  It is unclear what went wrong after that.


I went several time in this city. What a disaster!

PrinceDraxx's picture

If it was a runaway train, why didn't they decouple the engine so the cars would stop?


Maxter's picture

The engine was not running.  The train was simply going downhill without any driver.  The train was parked up a hill 10 km away from the city.  There is a altitude difference of about 100 meters between where it was and where the city is.

The train was rushing full speed toward the city and blew up when it reached a wide turn.

There is about 50 dead right now.


Crazy video can be seen here: http://zone911.fm93.com/actualites/incendies/item/16850-lac-m%C3%A9gantic-une-nouvelle-vid%C3%A9o-%C3%A0-donner-des-frissons

bluskyes's picture

They're not fully computerized, but there is a remote start system installed in CN's trains - Runs them for 1/2 hr every few hours to keep them warm for the next crew. Important in the Great White North.

Trains are equipped with maxi breaks that are active unless released by air, or manually released by crank.

Faulty bearings can cause fires, but there are Radio enabled thermal imaging shacks installed along the tracks every so often to identify hot wheels (bearings approachine end-of-life), and relay that info to the engineer.

I think I need to buy a gun's picture


francis_sawyer's picture



Thanks, again for the 'GRAMMER' lessons... [& thanks '2x' for the kito/Divine Wind twins to 'JUNK' a grammar correction]...

kito's picture

You need to up the dosage on your obsessive/compulsive medication

prains's picture

bifurcation bitchez!, spread it

The_Small_Lebowski's picture

As far as i was aware this is not club for helping kids to read good. Picking up on grammatical errors is a waste fo everyones time - including your own!


GeezerGeek's picture

That's easy for you to write (right?), considering all the errors your post contains. The problem for me is that sometimes it's hard to overcome the errors and tell what point the writer is trying to get across. From a different perspective, sloppiness in writing may sometimes be equated to sloppiness in thinking. 


Gavrikon's picture

Perhaps.  But it also could mean that the writer is not a native speaker of English.  I shudder when I consider my grammatical errors when I write something in German or Russian.

On the other hand, the writer might be a 2-digit IQ retard.

PrinceDraxx's picture

You are correct, sir. The possibility exists that the thinking is disjointed or even deranged. Proper punctuation and spelling are the epitome of good manners.

I can hardly wait for the down votes. My girlfriend kicked me off her friends list for three days after I told her this. :)

MeelionDollerBogus's picture


LiquidityandLunacy's picture

Paulson is down 65% but I'm only down 36%. #winning

disabledvet's picture

QE. causing massive shortages of dollars everywhere. gold and silver "lease rates" going negative sounds "reasonable" in the sense that yield hungry investors (those who search for any income at any price) are seizing up the money markets. this is shooting fish in a barrel in my view since the USA is fast becoming the worlds largest energy superpower. in other words I could very easily see a massive move higher in the dollar ala 1980-1986. outside of treasuries avoid debt markets as they are way over extended and harm liquidity of the underlying instrument (the equity.) I think Wall Street understands this and will limit/deny issuance in many cases. having said that a lot of debt could be issued at very favorable terms as the need to build a capital base to compete with North Dakota becomes paramount. that means buying dollars and "dollar substitutes" (energy futures, AAA rated muni debt, dollar swap agreements, mortgage insurance, etc.) this New Normal of Large Scale Asset purchases is not going anywhere. one of those assets is the US dollar. these rungs have a serial number hence the actual amount in circulation can and is being traced. M1-M2 are at zero growth. too few dollars chasing too many goods. go long liquidity providers in the form of "dollar cartels"...in other words equities that generate massive amounts of free cash flow through internal growth.

new game's picture

keyword-oil...black gold. petro dolla; unless russia/china can break its backbone(not likely).

oil dipped dollar or gold

zorba THE GREEK's picture

I'm totally invested in physical, but I'm not down at all. I still have the same 

number of ounces and I sleep like a baby every night.

fourchan's picture

the peaceful sleep of reality, gotta love it. 

tmosley's picture

Really?  I find that practically every time I open my safe, there is more in there.  The trend has become much more prominent since silver went below $20.

In this case, they will soon be able to say that the housing collapse was caused by falling silver prices, as my home caves in on itself.

Jam Akin's picture

You should go long jackposts.

PrinceDraxx's picture

Keep it split up and in several places lest the jack booted thugs come calling and decide they need to hold it for evidence.


MeelionDollerBogus's picture


on youtube h1inc (now gone) had this happen. Guns, silver, gone. Some returned with a fight but some may never be. No charges even, just an "investigation". That's how they do it.

It wasn't all in one pile either, so they didn't get it all.

The_Small_Lebowski's picture

FROM THE SILVER PLEDGE PAGE: "All we need is 1 million people pledging to buy 5 ounces of silver a month. That is it. That would be enough to significantly impact world supply"

Note the mention of world supply, but you can only fill the form out with an American address. Sorry guys but America accounts for about 5% of the worlds population? This is the most half assed attempt i have ever seen.

Agstacker's picture

When silver is under 20 bucks, I'm sure as hell stacking more than 5 ounces a month!!!

bank guy in Brussels's picture

Backwardation, bitchez !