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Physical Gold Shortage Worst In Over A Decade: GOFO Most Negative Since 2001
The last time there was an systemic physical gold shortage was in July 2013. It is then that, for the first time in 5 years, the 1-month Gold forward offered rate, or GOFO, went negative. We said:
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.
Fast forward to today, when as noted over the past week there has been a massive shortage of precious metals - most notably silver which as of this moment is indefinitely unavailable at the US Mint - as a result of the tumble in the paper price, and following 8 days of sliding and negative 1 month GOFO rates, today the physical metal shortage surged, as can be seen by not only the first negative 6 month GOFO rate since last summer's much publicized gold shortage when China was gobbling up every piece of shiny yellow rock available for sale, but a 1 month GOFO of -0.1850%: the most negative it has been since 2001!
Said otherwise, the physical shortage is the worst it has been in over a decade, even as the price of paper gold continues to drop!
And for those for whom the topic of GOFO inversion is new, here is how we described the situation last time:
* * *
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 all GOFOs, from 1M all the way to 6M 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 is once again afoot at the nexus of the gold fractional reserve lending market.
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You should be worried about a whole lot more if that is all the gold you have.
Why worry about something which I don't possess?
The pursuit of more and more material wealth is what has created this mess.
My needs are simple.
You have a point. Will you be okay if all the money in your pocket is worthless tomorrow?
I don't possess a lot of money. But I don't owe anyone any money or any lender any money either, thankfully.
All mortgages and loans have been fully repaid.
I don't aspire to possess or to own any more than I have now.
My needs are simple.
Missing the point. This isn't about owning things because of some sort of concept of wealth. This is about owning certain things for the sake of survival.
It's not even that. It's not about what you own. Its about the moral integrity of the system we all live in. It's about currency backed by real value that cannot be manipulated.
For god sakes, you people talk as if the crowd here will change the world by owning a few ounces of gold, unless you guys are actually the big money and can control the swings to the upside which I doubt then stop talking smack about how you'll provide for your families with your gold and guns - we're all be fuck whether you own gold or not, trust me you'll be the first to get rob and killed just because you own it.
god the people here are such doomsayers, its' not gonna end its not gonna go back to the gold standard, gold will go to 800 then up 2000 and stay there because of etfs and paper money not physical demand from either retail or central banks.
stop talking as if you don't participate in the world economy, the simple fact you exist you actually contribute to how the world is fucked up just because you own gold it doesn't make you more secure. Just don't forget that even if you own gold on a long enough timeline the survivable rate of everyone drops to zero, isn't that what you people here pledge allegiance to? so we're all fucked, gold or not.
fucking nutjobs here.
Yup
I prefer being a nutjob rather than drinking the kool-aid.
Survival? Can you explain what you mean? How can someone who has no debt whatsoever have their survival threatened?
Even if I never earned a wage again, I don't owe anyone anything.
Not owing doesn't mean that you will be ok. Do you have the means to provide daily nourishment for the forseeable future for yourself and family when the money you have is suddenly worthless? As in you have no currency or gold or anything to trade with. How will you live day to day? Do you have a large garden already producing? Do you have livestock already producing? Do you have the means to defend it?
I see the point that you're making. Currency becomes worthless and local traders refuse to accept currency for the payment of goods etc.
You're full of shit, or you think we are 'simple':
If your needs are truly simple and minimal, you'd have no need to hang out on ZH. Clearly there's more to it than you claim/pretend.
Your witness, ZHers.
I'm not pretending about anything. I have no reason to try to pretend.
I don't have material needs as such. I own my own home. I have no debts outstanding upon my home.
I don't have any outstanding loans of anykind.
I don't aspire to obtain any more material possessions. Whatever needs I may have are very simple.
I fail to see how any of what I have written makes me full of shit.
Not being in debt does give you a lead on those who do not own their home, their cars, their iPhone6. I owe some money on our tractor. That is it and it feels freaking good. Now if the .gov will just let me keep it.
There is a reason East TX herds cows and not food. Shit doesn't grow reliably here. That would be a problem maybe if the SHTF.
In Search of the Elusive Precious Metals "Capitulation" Sellers
http://winteractionables.com/?p=16225
Price controls cause shortages.
Classic, textbook situation, isn't it?
with the fraudsters you have to agree on the definition of "physical" is, as is can have different meanings
The only thing driving commodity prices up or down worldwide are speculators armed with cheap money provided by central bankers and super fast computers. This is causing a havoc in the lives of rest of the population and pushing them towards poverty as they can no longer afford the basic necessities of life.
Regulators are either hand in glove with the banksters or are too slow to react and take ages to identify and take measures to solve the problems.
Total ban on speculation and the reinforcement of Glass Steagall Act is strictly required to bring relief to the man on the street.
http://www.marketoracle.co.uk/Article40231.html
You seem correct. But don't expect UK's Brown or our brown guy to fix that. Or much of anything else.
Globalist Gangstas have their slimy Squid Vicious tentacles everywhere they should not.
Is it Calamari time yet?
There is no physical shortage when the usual physical premiums are currently discounts. And no shit that GOFO is negative when interest rates are practically zero.
China has law preventing you from buying gold and leaving country with it. HKG is limiting because Mainland orders come first. Banks and gold stores overwhelmed. You don't have now? Fuck you. Illegal to have gold in Vietnam. Bought some very nice .925 silver in Cambodia two months ago. Very small commission.
We are in the end game. Pain will persist for a while. Try to think two years
ahead.
You can find gold / silver in philippines but it will cost you Monopoly money.
You can find gold / silver in philippines but it will cost you Monopoly money.
"Today, something happened that has not happened since the Lehman collapse"
Seeing a lot of variations of that phrase in the news lately. Something is up.
ANECDOTAL EVIDENCE OF PM SHORTAGES:
- My primary PM broker has announced delivery delays due to short supply of physical.
- I have never received such notice from this broker before. NEVER. Not during 2009. Not during the 'surge' in 2011. NEVER.
3 of the worlds handful of meaningful currencies are imploding right now--The Euro, the Yen, and the Ruble. But lets pretend people are actually selling their own gold as the global currency collapse spreads like ebola. It will happen here too. But Wall St TV will tell you it is a stock market rally or Real Estate rally instead of a currency collapse.
The mint should look on Ebay. There is tons of silver for sale near spot (sans auction fees).
For now
Shaking out weak hands to obtain inventory? Desperation?
Someone or someones are rebalanceing paper gold that means front running. This seems to be front running on the short side.
Still India would likely see some heat if they ever 'lost' money on their gold position from the IMF. Still just looks like market player are playing.
I think its central banks holding off leasing their gold do to political conserns about their independance.
If something is breaking it will be fixed by even more leverage, because thats now how fixing is done. Moar is the new more dont you know.
If the shortage is the worst it's been in ten years, just why in the fuck is the spot price at four year lows???
the answer you'll get around here is manipulation, go somewhere else to get if you want the real answer.
mars?
just 5 down votes?
anyway gold will get whack again tomorrow then off to 900
Well, manipulation is a hell of a thing...
My coin broker told me flat out.
He replaces his inventory with today's locked in price from his BB.
The problem is he can't lock in the price, ergo he will not let go of any inventory. He only makes money on commish
There is no shortage in Australia lads. The Perth mint released a statement that it is stocked up a couple of days ago and yesterday my local PM dealers said that they are not feeling a supply crunch. What gives?
But they're all laughing in the back room over this having coffee...
My guess is, Perth Mint just stocked up (they indicated this is seasonally normal) and the recent AUD tumble is keeping local demand down..... for now.
Lets see what happens to local supply when/if PMs prices tumble further and this game drags on a for a while.
Today I bought some silver. Price is locked in. Delivery will be delayed about two weeks, maybe more. But it will come. Our government has redefined a lot of things: inflation, marriage, poverty, debt, social behavior, and now, best of all, the law of supply and demand. This is gonna be good...
The reason for the shortage of gold is simple :
They ate it . Tons and tons of it over the years .
See
http://andreswhy.blogspot.com/2009/02/gold-licks.html
If my boat sinks with me, I'll go down don't you see, cause I got them deep river blues
If my boat sinks with me, I'll go down don't you see, cause I got them deep river blues
The Perth Mint orders and sources from Australian mines directly, where it goes to refinery .....It no doubt has supply contracts in place.....first in first sereved.
It makes its own product, but also resells whatever people sell to it. Though it has limits on the type of thing it will actually buy.
Silver and gold are going to get whacked again tonight before tomorrows NFP. We could then see a big NFP number which would send gold sub $1100 and on its way to triple digits.
Shillfest Troll Attack = Back up the truck time.
Once you know his signature, the devil is quite obvious.
i heard this rumor that janet yellen dips her turds in molten gold to gold plate them before she flushes.
anyone else hear that one?
anyway this my theory as to why the price of gold is tanking, its literally going right down the toilet.
my theory is gold will tank - why because of China - they actually don't even own the amount of gold that everyone have speculated on, ZHers will celebrate it because now they can double down but along the way they'll get a headfake and then more smackin' the people that get smoked the most are the ZHers - the one with the high moral ground.
Meanwhile gold miners will close and go bankrupt and no one left to mine the gold, hmmm remember ZHers you need big machineries and corporations that need $ not moral to operate these mines....
Gold holders are so fucked tomorrow, another smacking is in order.
Silver is Tanking again, GtS ratio now 75-1.
Tylers,
The AP has become Pravda and felt the need to publish this article http://hosted.ap.org/dynamic/stories/U/US_FADING_GOLD?SITE=AP&SECTION=HO...
and somehow distributed so that my small town newspaper that literally has 1 page dedicated to national news had this article.
I think someone (or some government) is dumping paper at massive amounts, pushing the price down, and using the cash to demand physical different from other sources using different proxies so that it is not so obvious what they are doing. At least, that is what I would do if I had large amounts of etf gold and wanted to convert them to physical.
macro: Andrew McGuire is of the the opinion that the Bank for International Settlements, the Central Banker's Bank, was behind the 50 ton dump last Friday. I have read other accounts indicating that the BIS has been actively putting in naked shorts since that time. If these accounts are true then it could be that their motivation is to drive down the price to allow the Central Banks the opportunity to amass further quantities of gold at the lowest possible price. Could it be that something is up? We do live in interesting times.
Desperate to recover any Au they possibly can, they smash the price via paper and try to scoop up some of what they leased out to the PRC.
http://af.reuters.com/article/commoditiesNews/idAFL6N0SX2Q820141107
They won't call it a default and the main stream media is unlikely to give it much air time WHEN it does occur.
It will be played down as normal procudure as they invoke their right to go to the cash settlement clauses.
But after the music stops and they do force-ably cash settle and flush an large majority of the cert holders down the drain, then the real moon shot squeeze and scramble for physical is on.