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Gold Borrowing Costs Hit Post-Lehman High - Hong Kong Jewellers And Banks Face Supply Issues
From GoldCore
Gold Borrowing Costs Hit Post-Lehman High - Hong Kong Jewellers And Banks Face Supply Issues
Gold is little changed near a one-week high, and is marginally higher in dollars as the dollar has retreated from a three-year high, and higher in most currencies.
The gold market continues to digest the ramifications of gold borrowing costs surging to the highest since the post-Lehman Brothers scramble for gold bullion.
Gold Forward Offered Rates (GOFO) or the cost to borrow gold remains negative and overnight the 1 month GOFO has gone from -0.106% to -0.11167%. Other durations eased marginally.
The lack of liquidity in the the interbank London Good Delivery gold market (400 ounce gold bars) 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 after the Lehman Brothers collapse and near the bottom of the gold market in 1999.
The last time forwards were negative was in November 2008, when a scramble for physical gold led a sharp price rally of 46% from $682/oz to over $1,000/oz between October 2008 and February 2009.
Zerohedge.com first reported the development Monday and looked at it again overnight. It has also been covered by the Financial Times, Bloomberg and Reuters.
The reportage is somewhat contradictory with some commentators suggesting that the record borrowing costs was due to an increase in supply. The opposite is more likely the case given the fact that there are growing supply issues in Hong Kong and China (see below).
The increase in gold borrowing costs is likely due to a lack of supply of large 400 ounce bars as mints, refineries and jewellers internationally and especially in Asia are scrambling to secure supply.
Last quarter’s record slump is leading to continued physical demand especially in Asia. China in particular continues to see record demand and premiums on the Shanghai Gold Exchange are now at $24 over spot (see table above).

Cross Currency Table - (Bloomberg)
The feverish buying has left many of Hong Kong’s banks, jewellers and even its gold exchange without enough yellow metal to meet demand according to the FT.
In mainland China, the Shanghai Gold Exchange saw record volumes on Monday, while queues formed outside some jewellery shops in Beijing.
China’s net gold imports from Hong Kong increased from 80 tonnes in April to 108.8 tonnes in May or a 35% increase and May was the second highest total on record.
China is set to become the world’s No. 1 gold buyer this year – and it may be already. So far net imports through Hong Kong for the first five months of the year have totalled over 413 tonnes – double those of a year earlier when China imported just over 830 tonnes in the full year.
China’s domestic gold consumption was 776.1 tons in 2012, down from 779.8 tons the previous year, according to the producer-funded World Gold Council.
The world’s largest jewellery group, Chow Tai Fook Jewellery Group Ltd. (1929) posted a 48% gain in same-store sales for the first quarter.

Support and Resistance Chart
Jewelers in China and throughout Asia are benefiting from soaring demand for gold products after the recent price falls. This has led Chow Tai Fook and jewellery outlets having to buy gold bars and rebuild gold inventories.
Retail sales of gold tripled across China after the mysterious “flash crash” of April 15-16 when gold fell 10% in two days. Demand has remained robust and the recent weakness has seen continued demand.
Asia, excluding India this month, is witnessing one of the strongest waves of physical gold buying ever, with bargain hunters using the drop in prices to secure jewellery and gold coins and bars which is creating liquidity and supply issues in the global gold market.
The price gains seen post the Lehman bankruptcy in September 2008 (see chart) seem quite likely in the coming months given increasing supply issues in the gold market. The paper price may be pushed lower in the short term and therefore dollar cost averaging and gradually accumulating physical remains prudent.
NEWS
Rush to get physical gold to meet demand for coins, bars - Reuters
Gold borrowing cost hits post-Lehman high - The Financial Times
Gold Borrowing Costs Advance to Highest in 4 1/2 Years in London - Bloomberg
Chow Tai Fook Same-store Sales Jumps 48% on Gold - Bloomberg
COMMENTARY
Golden Backwardation Rabbit Hole Gets Deeper: Subzero GOFO Slide Accelerates - Zero Hedge
Negative Gold Forward Rates (GOFO) Is Bullish - Max Keiser
Global Markets Now On The Verge Of Total Panic & Meltdown - King World News
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They got the price of gold down......and it only took them $5000/oz to do it.
No big deal.....it's just paper.
Silver has finally reached fair value at $18 an ounce, just as I predicted. This by no means however implies that the collapse is over. Silverbugs should brace themselves for more pain, because this market has a long way to fall.
Wake me when it's is back to 8$ an ounce. That's the dollar cost average on my holdings and the point at which I will fill another truck. One of the few benefits of being a little older and wiser I guess.
Remind us MDB what's the price in fiat over the last 10, 15, 20, or 25 years again? Do you expect to live more than 25 years?
Ditto, Except I'm just under $9/oz.
It pains me terribly for having to become a friction to the fiat machine, but someone has to do it. Besides, I've the constitution to endure a good deal more 'pain'.
Meanwhile US debt and unfunded liabilities, currently at $141.7 trillion, continue to rise at $8 trillion a year (or $21.9 billion a day) per USdebtclock.org. How long will the confidence in the dollar survive?
http://www.usdebtclock.org/
Richest country on the earth Amigo.
Total Assets of USA are $99.946 trillion now per USdebtclock. Real estate in China alone is worth well over $200 trillion (land value in Beijing is worth over $20 trillion now).
Are the ghost cites in those figures.....or is that just the icing on the cake?
It don't include the intangibles, neither.
Booyah!
Intangibles like, say... floating pigs.
"...going down to the river for dinner" has a whole different meaning in China than it might in San Antonio.
http://www.thestar.com/news/world/2013/07/10/record_flooding_in_china_destroys_memorial_to_massive_2008_earthquake.html
http://www.nytimes.com/2013/07/11/world/asia/rainstorms-flood-chinas-sichuan-province-killing-at-least-40.html?_r=0
http://newsinfo.inquirer.net/442263/mudslide-in-western-china-buries-dozens-of-people
Right now the floods are washing Beijing away, it's current value is worth mud. And it's just the beginning of summer storm season.
What's the quality of life like in Beijing again? Are old folks still living in cages? Yeah, 20 trillion in "mark to fantasy" land.
Nowadays all economic statistics are fantasy. Do you believe anything released by the US BLS? Is our inflation 1.4%? Is real unemplyment 7.6%?
Nowadays all economic statistics are fantasy. Do you believe anything released by the US BLS? Is our inflation 1.4%? Is real unemplyment 7.6%?
Check ShadowStats #'s, the U.6 UE rate is over 23%+.www.jsmineset.com for latest from John Williams.
Define "worth" and we'll have a discussion.
....this appears to be similar to what we saw in Japan a few decades back with land in Tokyo being priced by the square foot.... their stock market at silly valuations.....and they explained that we did not understand that things were different over there.....their economy was so superior in every measure that different rules applied.
What happens when the west can no longer deliver gold for dollars?
I gave MDB an up arrow because I hope he is right. This is a gift that in the not to distant future will be remembered as a once in a lifetime opportunity.
If you find someone that is actually selling their stack for 18 a piece let us know, we'll stand in line behind you.
Meanwhile, another 3+ tonnes of gold exited the COMEX system yesterday, and JPM has turned on a dime and already bought more silver for their house account this month so far, than they had sold in the previous six months combined.
MDB= BS zero contango, this thing is ripe
http://zysites.com/silververitas/
Meh, volitility, it's what you get when a relative few try to manipulate markets. Humanity isn't just another ponzi, it's the ponzi. Everyone should recognize now that there are multiple markets at work. Don't confuse paper ones with physical ones.
reporting from istanbul, turkey : gold coins are in VERY short supply as the turkish state mint went on strike. very few people sell their coins in the market and the premium for those coins are at around %10 at the LCS (extremely high for turkey). no one knows for how long the strike will continue.
+ 1
Turkey is an important market for gold, in an importrant neighborhood. Thanks for the report!
my view of the reason for the backwardization are shortages of paper due to QE "everywhere." obviously this does make gold a buy...among many other things as well however (especially equities as these things are settled in cash everyday.) banks can close the gold window too so i would never be long price. silver is still a very interesting play since it so readily available...but haven't margin rates gone up again at the CME? we know real rates have risen and risen spectacularly. not a great time to go hog wild in the precious metals space historically.
Shanghai good exchange $24 over spot. Loving that.
You may think it's funny but it's spot
MDB is certainly an interesting case study. Is he a masochist in seeking down votes? Or is he just a true sociopath working as a tool for the 1%? His anti PM comments are completely devoid of any facts to support his thesis, unlike even the psyop military trolls who at least do a modicum of research.
We've had better. He's far from our best droll troll.
Consider the possibility that he's being sarcastic. "This is what the mainstream expects you to believe."
I suspect that MDB is Jon Nadler, bored in his unemployment after shilling for the financial status-quo on Kitco but still as eager as always to bash the precious metals and his self-created "Radical Goldbug Extremists".
MDB_ (with an underscore at the end) is nowhere near the original MDB (without underscore) when it comes to creative humorous sarcasm.
FT Resident Shill: GOFO negative = deflation = more easing.
Indeed, deflation is a myth, no society/currency has ever collapsed/died because their purchasing power was too strong.
Off hand no examples of that come to mind.
Theorectically it is possible if the country or society had an absolute fixed amount of currency....perhaps during the bronze age this may have happened to a country in the ME???
GOFO neagtive means people are throwing paper money at you to get your gold. Deflation? No. Stage 1 hyperinflation? Yes.
+ 1
My thought as well.
A lack of supply in the face of relentless investment dishoarding means that banks that were formerly not players in bullion markets have now become interested players. It makes sense that a volatility smile is in vogue for the past 9 months, because if there is a very large, highly leveraged gold derivative deal in place, then it would require a certain amount of bullion as an asset.
There just isn't enough to go around.
Well, Apmex seems to have plenty of supply and premiums haven't changed much. When I see premiums for physical widen, I will believe the physical shortage story.
That being said, I think eventually gold will rise if for no other reason than more paper is printed. Could be lots of other reasons for price movement as well.
Thats certainly not the case with Kitco. They are down to approx. 3 varieties of 1 oz silver for purchase, down from 8-10 in months passed.
Tulving is sold out of most of his gold and silver and is way behind on deliveries. Read some scathing reviews on his service recently too. NWM is months behind.
APMEX has ASE's going for $25-$27 an ounce (spot $19.34). Not sure what he's looking at above, but that's a huge premium.
APMEX has ASE's going for $25-$27 an ounce (spot $19.34). Not sure what he's looking at above, but that's a huge premium.
Anyone doing business w/these dudes deserves the prems,JP Morgan is on the bottom floor of their estab, and unless they changed is their bank.
Perhaps because they are a large enough dealer to hedge in the futures market? OTOH - perhaps a dealer like APMEX is effectively disconnected from the larger supply/demand issues (e.g. the 400 oz. gold bar crowd.)
Looking forward to the bernank gold smackdown today.
Short stocks, long PMs here, if you believe that the recent volatility over the past two months signals a change in trend. Either way, I don't really care as I'm long miners and physical PMs.
http://www.bloomberg.com/news/2013-07-09/gold-in-japanese-etf-expands-10-as-price-drop-entices-buyers.html
"Gold Forward Offered Rates (GOFO) or the cost to borrow gold remains negative and overnight the 1 month GOFO has gone from -0.106% to -0.11167%. Other durations eased marginally...."
Could someone explain why this would be? I know I'm missing something in the context - I would think as the market tightened for actual current physical, the "cost to borrow" would skyrocket, not go negative or decline.
Thanks in advance for helping me understand.
Liebor - lease rate - gofo
http://victorthecleaner.wordpress.com/2011/04/21/the-gold-forward-offere...
Very helpful. So it is actually the cost of "loaning your gold in order to borrow $US" - now that makes perfect sense. In other words, if I wanted to use my gold as collateral for a loan of $US, I would pay a negative rate (i.e. they would pay me). Now I better understand that the world/market is waking up.
Thanks again for your help.
Thank you - that makes sense and I understood it a couple of days ago when it was first mentioned on ZH. I'm not sure it presented in the understandble way however. Thanks again.
For those of you who have read Griffin's book "The Creature From Jekyll Island" you will remember he explains that throughout history every nation that experienced hyper-inflation always had a severe deflationary period first before the hyper-inflation set in. We will experinece a period where there will be no cash because banks will contract credit; raise interest rates, and the government will impose wage and price controls. So, hold onto to your hats while we go through a horrible depression/deflationary period, but also hold onto your gold, because in due time we will have hyper-inflation.
Ka-Poom
i have 100 ounce to spare but only at $2000 per ounce