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The Golden Backwardation Rabbit Hole Gets Deeper: Subzero GOFO Slide Accelerates
Yesterday we described the historic inversion in the Gold Forward Offered Rate, where the 1 and 3 Month GOFO rates sliding into negative territory for the first time since 2008 and 1999 respectively. Today, using the latest LBMA rate update, we observe that the gold backwardation is accelerating, and now the 6 Month GOFO has also joined the complex into sub-zero territory.
This is how we summarized the disturbing observation in the chart above, which as we said yesterday 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.
Today, the golden backwardation story goes mainstream, with the FT catching up:
The lack of liquidity in the leasing market has pushed gold forward rates, known as “gofo”, into negative territory, meaning that gold for future delivery is trading at a discount to physical market prices – a rare situation that has occurred only a few times in the past 20 years. The last time forwards were negative was in November 2008, when a scramble for physical gold spurred a sharp price rally.
Traders said that investors were alert for the possibility that the current tightness could trigger a squeeze among hedge funds with short positions in gold, potentially driving prices higher. “It has piqued people’s interest”, said one senior precious metals banker. Gold was trading at $1,248.50 a troy ounce on Tuesday, up 5.8 per cent from a three-year low at the end last month.
Bottom line, whatever is causing the dramatic collapse in liquidity and/or collateral, it is certainly not letting up.
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Is this a signal of proxy war Between U.S./EU (debt) and Russia/China (gold) in the "Last currency standing" game?
Looks like that Atlantic Free trade treaty needs to be signed STAT before something breaks in the "markets"...
Liquidations are a bitch, I think that is what we have going on somewhere!
Gold and silver always sell off whenever Bernanke speaks. That sell off is required to demonstrate that Bernanke has authority and gravitas. Otherwise, most would take him to be a lunatic. So it is no surprise GOFO is declining before his address tomorrow. Manipulated markets are so predictable.
"The last time forwards were negative was in November 2008, when a scramble for physical gold spurred a sharp price rally." FT
Ok, got it.
nov 2008
bought gold for thanksgiving...
Tradition bites.
I guess this means gold will soon be counted in the GDP as an intangible.
All they need to fix GDP is to count inflation anf corruption as exports.
So the gist of this is, somebody comes up to you and says 'hey, if you loan me your gold for 6 months, I'll give you cash now AND more cash when I give it back to you in 6 months'. Who the fuck wouldn't hear that and immediately start to think 'you know if you need the gold that bad now, I'm not so sure I'll be getting it back in 6 months' and walk away. I expect the negative rate trend to continue now that its started...
Al Tomorrow Ben rips a fart and makes a "tapering" motion to wave the smell away and gold drops $50.
...gold down sharply on Bernanke flatulence.
Whoever smelt it dealt it.
Smile, say "I cut the cheese", hold your breath for a minute, exhale the remains to garbage bin, and snap it. There I fixed for ya.
Hand gesture implied....great visual
OT: Fonz, on another post, in another thread, in another time....you indicated your wife is from Belarus. You were talking about her mom. How hard she was given conditions she grew up in etc. My wife is from Ukraine. Her mom is a bad@ss as well. Been through stalin's purge of '33-34, Natzi occupation and susbsequent 40+ years of communism. Tough lady. Sent a contact to you so now you know kinda who I am....BTW dig your perpsective.
Unless it was someone else's gold to begin with.....
Be careful, the scumbags who have been manipulating gold could be setting up gold for another fall by engineering the indcators.
http://arikia.files.wordpress.com/2013/02/princess-bride.jpg
I agree it is curious, but from the chart it looks as though something that has been very slightly positive for the last few years has moved to being very slightly negative.
I don't think gold is going is going to the moon on this one.
BTW, anyone know what happened to all the noise about JPM possibly not having enough metal inside Comex to fulfill deliveries?
Yea, I traded them some high quality weed for their metal so the bucks shouldn't be a prob, did you need some physcial?
I just read Harvey Organ's blog... both COMEX and JP Morgan have very low inventories of gold in their vaults. Maybe they'll both crash together.
You might think that if the minors know that JPM/Fed is trying to bankrupt them via suppressing the gold price, then they would fight back with some sort of curtailment of the selling of their mined product and let jPM/fed blow up on their paper shorts while there is no gold to be had anywhere.... or at least taper the supply they bring to market if they can without going bust first.. or better yet an international precious metals agreement to withhold gold from the market and break free of the paper chains that are suffocating them... I mean even just some sort of announcement of intentions...anything rather than bleed to death via the banksters hooks.
Maybe the miners are owned by the banks? Figure all that comes in to play distribution-wise- there may be ample off-setting forces (freight etc) in addition to the banks themselves.
I like the spirit of it though...
Call it the Kennecott Kockblock. F U Paper Mache' Men. I think my reserves will be held until something like a free market returns.
Very plausible happenstance where no one gets hurt, pretending to play ball, but You no Gettee Access. All the volatility in the world doesn't bother the deep underground real.
A true Vault of sorts. No paper ETFs or grubby hands can touch it.
Takes true manly labour, take sweat of brow stuff. Not pansy ass banker machination.
Well...a possiblity not mentioned in article is that the miners are selling forward to raise cash.
Collateral issues indeed could be a factor, but a significant short squeeze has not yet materialized since the beat doiwn of last week.
BUY. GOLD. NOW.
I will, Gordon, again and again.
and again, and again ad infinitum. Love the fire sale presented to us.
A serious question...
I keep hearing that the big bullion banks and investment banks are getting rid of their short contracts as the price of PMs is being forced down. Then I hear that they are in the process of loading up on long contracts. Where are they getting those beaucoup long contracts? Who is selling them all those long contracts? How can there be that many sellers of long contracts for the big banks to suck up if that means someone has to take the short side of the trade?
Am I missing something here?
I would tell you, but only if you were from San Francisco.
I visited there once... Does that count?
That depends on where you stayed.
Somebody on purpose is calling callateral and margin on the hyper-leveraged parties.
Leverage is the issue, the only issue. No escape when call is made.
A russian billionaire (the aluminum guy) I don't remember the name of, lost few billions when SocGen called margin on his deal with Magna n 2008.
they gave him 48 hrs and he was forced to sell his magna stake to Stronach in a firesale in order to meet the call
I wonder what Stronach had to pay SocGen for that little assist.
A few free seasons to his (then) quite good stallion El Prado.
Was he forced to sell his miniature giraffe?
It's hedge funds chase the short-side momentum trade. They don't HAVE to take the short side of the trade, if anything, it's more accurate to say the banks HAVE to take the long side of the trade. Hedge funds are operating on the idea that they'll be able to close out their uncovered short position before expiration and avoid any delivery obligation.
Speculative shorts;
Commitment of Traders
The big news is that commercials added about 21,400 new contracts long. In the last three weeks, they’ve added nearly 40,000 contracts, or 4 million ounces gold.
The commercials took the long side as producers reduced hedges by 4,076, to 15,190 from 19,266 last week. The producers are simply not delivering sufficient gold to the Comex. No wonder Comex registered inventories are at an all-time low. Swap dealers picked up the pace of their longs with a net 8,356 more in the kitty.
The CoT data shows the large-spec money managers net shorted gold by an additional 8,905 contracts toward the short side in the week ending July 2. Under the CoT report’s category called “other reportable,” 4,496 contracts were added to the short side.
Given the extreme off-side trading and indiscriminate selling (actually shorting), I have to ask: Who are the rogue-trade slingers in the spec complex? Is it another Enron or another Long Term Capital Management?
more- http://winteractionables.com/?p=4267
already answered
Wish I still had some dry powder....
"Today, the golden backwardation story goes mainstream, with the FT catching up:"
took them that long to read zh?
No, they read ZH within minutes like we do. It took that long to get approval from their corporate masters.
It behooves an adult to own some Au, especially if that adult is the head of a household. To _own_ as in have physical possessionof element 79. (Probably about a troy ounce per adult and a tenth ounce per child.) Why? because if in the future a use is found for gold no substitute will suffice and there will be no faking ownership. Of course there are other more important things that an adult should have before Au, but copper, lead and silver will be available to those who have Au. PROSECUTE YOUR WAR CRIMINALS AMERICA, THERE IS STILL TIME TO STOP THE CATASTROPHE.
I'll contact Eric Holder. I'm sure he will get right on it.
i just noticed my mining stock cert toilet paper flushes better than my pharma certs. do u think its becuz they're heavier?
Reality creeping in.
so say your a miner, and have a contract to deliver gold. bcause you hedged. ehats to stop you saying fuck this , and paying the cash price and keeping the gold tll the price goes up?
Having no cash on hand to pay might keep them from doing that. Many miners are in deep debt and live paycheck to paycheck.
Silly miners...
~~~
I just walk around with a basket because people are throwing it off their roofs...
GOGO rates 2015:
1 Month: -10%
2 Month: -30%
6month: -100%
1 Year: -200%
Welcome to Weimar USSA, Pitchez
There doesn't appear to be any corelation between this chart and the spot price over the past 10 years.
Just Saying.
You need to look at the correlation on price moves during the times GOFO is negative. You'll find there's a very strong inverse correlation during those periods -- backwardation is a sign of stress in either the gold market or the overall financial system, and pricing goes up during those times, often rapidly.
... meaning that gold for future delivery is trading at a discount to physical market prices ...
I don't understand how this is bullish for gold. Couldn't someone borrow some gold, sell it and at the same time buy a future delivery contract, and pocket the spot-future difference plus whatever interest would be earned on the money obtained from selling the gold?
think of GOFO as REPO rate going negative, if you have a collateral and you want to lease it or someone wants gold and you want to deliver it to him for 1 month, then he has to pay you money.
so if am short on gold and i want some for 1 month, i have to pay the guy for gold, instead of me getting the money, which says that there is shortage of "PHYSICAL"
this is really dangerous, something is not right long story short.
peace
Thanks for the explanation!
But it seems to me that this could be caused by a shortage of physical OR by a surplus of future gold. For example, if some of the miners are getting worried they might start selling their future production forward at cost (or even at small losses in order to keep their mines open) in order to guarantee their survival.
you are 100% right
There is zero evidence miners are hedging forward, in fact the opposite, they have reduced hedges from 2,000,000 oz last October, to 150,000 now. The Comex is getting no deliveries from this source.
Thanks for the explanation!
But it seems to me that this could be caused by a shortage of physical OR by a surplus of future gold. For example, if some of the miners are getting worried they might start selling their future production forward at cost (or even at small losses in order to keep their mines open) in order to guarantee their survival.
Only one problem with this scenario, not many are large enough to sell FORWARD at prices below their production costs,and that is a price they won't know till they get there.
I am confident that this means when banks and central banks really really need my physical I won't sell it until they offer me a high enough price.
If they pull an FDR and try to make it illegal to hold they REALLY will not get it from me at any price, no matter how badly they need it.
The only hitch in your plan is "they" know who you are and you've just told them that you're holding. Oooops
Good, and yes, but I and 100's of thousands - if not millions or billions of other's - don't give a shit and have bullets for the mother fucker's.
I am willing to give my life for the value of my labor and my inalienable rights, are they?
Pack your lunch pussies.
JOHN HANCOCK.
Same as backwardation, no?
People are just willing to pay more for real stuff today than wait for future delivery tomorrow.
(Think hamburgers and Wimpy... If you're really hungry, as in starving hungry, you want your burger Now, not next month)
Which means what?
For some of any a bazillion reasons, people want or need the gold, the shiny physical stuff right now.
Now, for a conspiracy theory like thought.
I'm a big ass bullion bank. For whatever reasons, I been shorting gold for my own account or on behest of a big repository client (CB, whatever) driving prices down. They want them down to punish the gold bugs, keep the illusion of sound money during the printing wars, whatever... it doesn't matter one iota ...
So lotsa paper sold.
Pushed "spot" and paper down
Me, as bullion bank for my own account, I've covered any shorts
Not that of/for my client, that's his problem, I'm only his dealer buddy old pal...
I've covered my paper shorts, so I'm whole.
Now, I sense that there's some increased demand for the real stuff, to with China via Hong Kong, etc.
And what's the proof?
BACKWARDATION!
So, what's my next wise move?
The screwing's going to be in Physical Availability.
So what am I accumulating?
PHYSICAL!
I might even buy some contracts to ride the rally if I'm brave, but as a dealer, I know a squeeze when I see it.
And the market's in backwardation when it should be in contango
Squeezeola
Me, I get on the physical bus and play screw my buddies.
Toot Sweet as the Froggies say.
The Life of Pi can be a bitch when you don't beleieve.
No, you have it backwards. If you're the bank and you actually have the physical gold, the profit opportunity in this backwardation environment is to sell front month gold futures, deliver the physical, and buy later expiry futures to replenish the gold when it's cheaper. In other words, sell high, and buy it back low.
You're missing the point about backwardation in the gold market. The reason it exists is that those who hold gold won't sell it and buy it back in the future because they don't believe the contractual commitment to deliver will be honored and they'll be left with 'cash settlement'.
Thank you, Al
In strictly criminal terms, a crook would offer you a higher price in the future for your physical now (at a cheaper price). Of course, the crook knows the future stuff won't be there, so he gets your fizz and you have a paper promise of future fizz at a higher price????
i just read everything and i am even more confussed.
think i will cost average and buy every fucking dip til i dip out...
Double dipping is allowed...except on Seinfeld
me 2
just BTMFD
Where’s another Mr. McAdoo of Aldrich–Vreeland fame when you need him? /s
Hold a $20 gold Saint Gaudens coin in your hand.
Feel the power of real money.
So true.
When I was a little boy back in the wee early 60's we went to France for vacation and late nights wandered about parts of Paris populated by street performers, drunks, whores, bars, brasseries, Pigalle, the olde Markets Les Halles, etc. One night I was fascinated by one of the guys swallowing swords and my dad gave me a small denomination centime coin to give the guy. Well, it felt like it was made of tin, so I asked pop why it felt like play money..... And he said, "Because it's not real money, son."
India has had quite a history of divergences between the domestic price of gold and the international price of gold:
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/41T_HB150909.pdf
...and the last significant 'public' gold reserve continues to be sold off - GLD down another 6 tons today, after dropping 15 yesterday. 961 Tons on Friday, 939 today.
Anyone know the difference between this negative GOFO and backwardation?
GOFO has to do with lease rates and backwardation is the longer futures contract trading at a discount to the near contract.
Thanks
"negative GOFO" is a valley girl term for a rejected mall item where "backtardation" is used mainly in financial circles to signal that the trader just lost a "MOFO of MOMO" sometime in the future.
If all you got is a lousy Ace, you've already raised, and for #ucks sake, everyone saw and raised you, what wud u do when u also have the most chips sitting on the table.
YOU BLUFF some moar...
...and if your final bluff gets called, you flip the table over.
and yell BINGO!
and take the money and run.
I did that on Westheimer in Houston, once.
I'll go with those two.
The future of mining production is not looking to promising at the moment either, if supressed PM prices was not enough now they have to deal with higher oil prices.
They are still in control. Wake me up until gold is at $1,900.00
Still buying real gold when able, plenty available.
yeah, they're in control like a juggler who has already dropped two of the twelve balls, and is scrambling to regain his balance while attempting to avoid slipping on those bouncing around his feet.
Step up to the table. We have three shells on the table, care to make a bet? Meanwhile, the rash of Central Banks are consulting with the Forex markets to bring equilibrium at bay. Asshat Crammer will be pumping loosing stock positions by calling them {honk, honk} the best tasting butter around….
Is there anything else necessary or...
How to create a short squeeze of epic proportions in the Gold market.
Yesterday we saw that Gold went into backwardation on the LBMA.
For the first time since Nov.2008 when the world feared a complete meltdown of the financial system. Today, the sentiment is far different than it was back in 2008 as no one wants to miss the "next" rally in equities, greed abounds and fear doesn't seem to be present.
It is important to understand that Gold should never ever go into backwardation unless something is really wrong.
Gold is money and future money should ALWAYS carry interest with it.
When Gold for delivery today cost's more than Gold for delivery in the future, it carries with it "negative interest". This phenomena can happen in other commodities if there is a shortage, since Gold has been mined for 5,000 years and vaulted, no shortage can occur...unless the price is too low to coax it out onto the market. I have written many times that this was the case, the price of Gold is too low which creates excess demand and inhibits supply, the current backwardation may be validating this view.
Or another explanation is that investors have finally figured out that the jig (rig) is up. If investors want Gold now, today, it is worth paying more (interest upfront) to get it. Maybe investors are afraid that at a later date they will not receive delivery?
Maybe the message has finally gotten out to enough investors that the whole game is that of "fractional reserve" and just because you have a piece of paper that says that you own Gold...maybe you really don't. Yes shortages have something to do with it but the driving force behind the current backwardation is a lack of "trust".
"Trust" that you will receive your metal at a future contracted date...so you buy it now and get it delivered now...while you know that you still can.
So we now have the theoretically impossible (in a perfect world) backwardation of Gold. We also have speculators more short the Gold market than ever before. The commercials look to be at least flat and maybe even now long which would be the first time in 20 years or more. Inventories are depleting as evidenced by the ABN Amro default, COMEX inventory depletion and GLD bleeding Gold like it's jugular vein has been slit. We also know that supply will surely contract as the Gold price is now below the cost of production for many miners.
Along with the above, we have seen demand for Gold surge in every language spoken on the planet. We also know that China has been hoarding Gold and inking trade deals all over the world which excludes settlement in Dollars, others have followed which will cut demand for Dollars. Yes, yes, of course we also have a Fed which is oversupplying Dollars and a Treasury which is burying itself in debt but it has only been recently that Treasury yields have started to rise in violent fashion. As has been reported for 3+ months now, there is also a shortage of Gold on a global basis where premiums (backwardation in itself) have been asked for and paid for to receive metal along with slower and slower delivery times.
To top this off, worldwide, refineries have been running 24/7 to keep up with the demand.
On the sentiment front, could anything be worse than the sentiment amongst Western Gold investors? CNBC, Bloomberg and your friendly neighborhood stockbroker have backed up the price suppression by telling anyone willing to listen as to how scary and what a bad investment Gold is...foreigners know better and are not listening.
Were a short squeeze to have already started and kick quickly into high gear it would take Westerners by total surprise. For Westerners a rapid rise from here would be viewed as a short squeeze, for Easterners if would merely be an extension of a buying panic. From whichever view, the result will be the same, MUCH higher Gold (and Silver) prices.
Write a playbook for how and why Gold is revalued higher. You could not put together a better scenario than right now.
Everything is in place!
Supply constraints, increasing demand from both the fear and greed sides, a financial system that is not mathematically viable and showing signs of failure, currency wars between nations and now the "I want it and I want it in my hand NOW" syndrome.
The price of Gold should never have gotten even close to current levels. Rightly or wrongly they did, but we now have evidence that "current prices" will not stand for long. The marketplace itself is telling you that something is very wrong and expressing this in price action.
Do we know "what" exactly is wrong?
Maybe, maybe not but we do have some clues, the important thing is to listen to what the market is telling you...the price is not right!
http://www.lemetropolecafe.com
For anyone who is buying the best deal for physical gold bullion around from a small US miner. 5% below spot! Take delivery or sell to his refiner at 1% below spot. Lock in 4% monthly regardless of what the spot price is. I won't post a link but will provide it to you if you want to contact me; you can deal directly with the miner and the refinery. Greg@logigold.com.
Pay Tyler(s) some ducats for your advert and you won't get down arrows.
Perhaps the central banks with gold at the Fed are dumping gold without moving it by hypothecating it to US buyers. Paper gold price goes down and physical gold price goes up, because all the gold they are selling is not available to the physical gold market.
"we've drilled too deep, men. she's gonna blow! run!
Question. My wife's grandfather left her 19 St. Gaudens coins, but they are of the numismatic type (in cases or whatever they're called) dated from like 1908 to 1927 or thereabouts. Neither of use know much about gold, but she has considered selling them for fear of the price dropping further in the next year. Would it be wise to keep them or take the money and run? We don't need the money, but we're not coin collectors either.
I can post pics if requested.
TIA
Haha, hell no, shoot her before you sell them.
(OK, maybe just tie her up).
"We don't need the money..."
Then have the basic common sense to leave those coins to your children or grandchildren!
Her grandfather was one smart man ... follow his lead.
If she would have had the coins when gold hit 1900, I think she would have sold them even at spot price just to get the money. However, now I'm the dumbass because I said to hold on to them because so-and-so said gold was going to go up, up, up. Well here it is at $12__ and I'm not lookng too smart.
We are going to retire someday I hope, and as my dad used to tell me I could take out a loan for college but he could not for his retirement. However, as we are helping puttig our kids through college despite the economic malaise the past 5 years and it has put a strain on our finances, if gold does ever go back up, it will be hard not to sell. We don't know when her grandfather purchased the coins (didn't know he had them), but to be honest I really don't see the sense in handing down coins generation to generation without somebody along the line getting financial benefit from them.
Those coins have been free family insurance for the past many decades.
Would you not want them to be the last thing sold?
slimething, have you not seen the chart Tyler puts up showing the reserve currency timeline a hundred times? Every fiat dies, but not every fiat really lives.
Every single person who inherits those coins IS getting financial benefit. The benefit of having a valuable asset that can be liquidated if NEEDED. You should only be so lucky as to never have to liquidate. I'd say keep adding to the stack.
Sounds like you need the money more because judging from the tone of your posts, you would prefer to get rid of them for fiat. It also doesn't help that you have a bunch of women behind you clammering to sell them all NOW so that they can take the money and go on a shopping spree for useless shit. I gaurantee if you were a single man, you'd hold on to them no questions asked. Sucks to be married. Glad I'm single.
Don't sell buddy. Tell G-maa to hang in there. The gold price is not the price of gold.
Those 19 coins are a much better store of wealth than anything you can exchange them for. As tough a time as I'm having even putting bread on the table, even my wife understands that and she buys what she can. Meanwhile, I keep on mining. I can't believe a man with your evident wealth needs to question the situation. Do a bit more reading around zh on gold related articles, I'm sure you'll get it.
We aren't rich or "well to do" by any stretch, just didn't get hit hard like so many others, and are not in debt up to our eyeballs.
I appreciate the input.
If you don't know how to handle numismatic slabbed gold coins, hang on to them. If they were mine (which they are not unfortunately), I would auction them off and gain the numismatic premium and IMMEDIATELY turn that fiat into generic gold like American Eagles. You would pick up some extra ounces in the process. I've been doing that with all of my numismatic gold and silver coins over the last 10 years, and I have a ways to go yet to sell them all. It's a process that takes time and timing.
>> Would it be wise to keep them or take the money and run?
You could always sell 9 or 10 and keep 9 or 10. If it goes up, good for you, if it goes down, good for you.
Keep them! If you sell now, you will kick yourself really hard in a couple of years.
You lucky people, your wife's grandfather was one smart man.
Those St. Gaudens will carry a nice numismatic premium over spot depending on their grading.
But imho it would be a bad idea to sell any of them right now (unless it's to me hehe).
The price may go lower in the short term but a year or two out you should be happy that kept hold of them.
Its one thing to not have gold and to never have been able to buy it. That is most of the world population.
You are one of the blessed few who have it and you want to sell it?
It is to be used in really hard times, in life or death situations. That is why it should be passed on if you are lucky to never -really- need it. Selling it to maintain some kind of lifestyle is a horrible mistake.
That is why you don't value it vs fiat; when you really need to use gold, you can't use fiat. It is the ultimate insurance and -should- be passed on.
All the good stuff gets swiped from ZeroHedge.
Wow! We are watching the tide go out on the fiancial tsunami. GOFO it!
Jefferson Airplane -White Rabbit-
http://www.youtube.com/watch?v=WANNqr-vcx0
Did the JPM smashdown in the price of all the PM's over the last few weeks cause this or did they see this coming and swap their shorts for physical in anticipation?
If I was a miner and had a bit of cash, I would not be selling my gold just now ... and if a few other miners did the same ... we might see a quick turnaround
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/9_Game_Over_-_Its_All_A_Farce,_The_Fed_%26_German_Gold_Is_Gone.html
I trade size
could someone please clear this up? When GOFO is negative who pays interest for the swap, the lender of the gold or the borrower of the gold?
can anyone tell me?
It's the opposite of what Huxley said. Gofos are gold forward contracts. You pay today for delivery of gold in the future.
As LBMA describes them "These are rates at which contributors are prepared to lend gold on a swap against US dollars."
If Gofos are positive, the lender of gold earns interest. If Gofos are negative, the lender of cash earns interest.
Keep in mind though that actual Gofo contract rates can differ widely from reported Gofo rates. The reported Gofo rate is a lot like Libor: an average of self-reported estimates of what gold lenders are offering to theoretical generic customers. Actual rates may vary, or might not be available at all, especially if, say, a Greek bank is asking.
See the comments above. When GOFO is negative, you swap gold for cash, and in the future you get your gold back (theoretically) plus interest. Normally it would be the other way around - the gold would be collateral for a $ loan and you'd pay the loan back with some $ interest and get the collateral back.
There is no 'swap' as such: the fact that the futures string is in 'backwardation' (forward prices < front month prices) simply means that you can sell the front month, buy the forward, and have a leveraged exposure to the whip that happens when the string goes to 'contango' (which is the natural circumstance for commodities in the presence of inflation).
I was talking to <b>The Lovely</b> about gold backwardation at breakfast the day before the recent swing low - which I why I posted about it that very day.
With regard to human behavior, it is always interesting to see the pile-on-to-first-comment,
as if, perhaps, a voice is important, and voicelessness is in fact what ails us (it is).
It takes precedence, even, over Gold.
Yep
I can remember all that silver backwardation retardation, too. Didn't mean fuck-all but to the ETF jockeys.
um.. I think I might have an ounce somewhere that I might be willing to sell at somewhere around north of 5K US fiat .. assuming , of course that this a free trade amongst free men of free and upright character. else.. GFY
O/T, but,
Feds Bust BitCoins
http://www.postandcourier.com/article/20130707/PC16/130709585/1177/digit...
“We at the CFTC can’t find any fault or wrongdoing in the Gold Futures Market”
Gary Gensler
“Thanks Gary, but, could you at least wait next time until we tell you what the problem is?”
Lloyd Blankfein