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Gold Shortage, Worst In 21st Century, Sends 1Y GOFO To Lowest Ever... And India Just Made It Worse

Tyler Durden's picture




 

While we have covered the aberration that is a negative gold GOFO rate previously and in extensive detail in this post, an abridged version of what negative GOFO means comes courtesy of Deutsche Bank's recent discussion on what a successful Swiss gold referendum. To wit: "It is interesting to note that benchmark gold-dollar swap rates have recently traded negative, meaning investors are paying to borrow gold. This is unusual as gold is traditionally used as a source of collateral for cash financing.... [A] number of factors may play a role, such as excess dollar liquidity or an increased demand for collateral on the back of the global regulatory developments." In short a gold shortage at the institutional, read commercial and central bank, level. And not just a shortage but the biggest shortage in history, judging by today's latest plunge in the 1 Month GOFO which just dropped to -0.5% and , worse, 1 Year GOFO that just hit its lowest print in the 21st century, and is also about to go negative: something that has never happened before further suggesting the gold shortage could go on for a long, long time!

Negative GOFO

To be sure, GOFO has printed negative in the past, although the two most prominent historic plunges were due to acute events which promptly renormalized, and were not the result of what has now become a chronic gold collateral shortage via the swaps market.

The best known example of a complete collapse in the GOFO rate, is the September 1999 Washington Agreement on Gold, which was an imposed "cap" on gold sales (mostly European in the aftermath 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.

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, which reset the GOFO rate to just barely above 0% where it has traded for most of the time, at least until last summer when in a widely documented episode of negative GOFO rates, GOFO went negative in July of 2013 and remained in negative territory for over a month.

Which brings us to today, when not only is the 1 Month GOFO rate the most negative it has been since 2001, not only is 2 through 6 Month GOFO also negative, and in fact the 6 Month GOFO is now negative for the longest stretch in history clocking in at 11 consecutive days, but, strangest of all, the gold curve backwardation is about to become absolutely historic with 1 Year GOFO just a whisper away from hitting negative territory for the first time ever at 0.02667%.

But how is it possible that there is a shortage of gold when gold prices keep tumbling day after day, the skeptics will ask? Simple: the shortage involves gold "available" in the repo market, i.e., gold that already has been rehypothecated one ore more times. Keep in mind that central banks rarely if ever purchase gold outright in the open market, unlike Russia of course (and perhaps China), which has been engaging in an unprecedented gold buying spree over the past year. The rest of the commercial and central banks merely rely on shadow banking conduits and other repo channels to satisfy their gold needs, all of which merely demand the "presence" of synthetic, if not actual physical gold.

It is this synthetic "shadow" gold that is now actively disappearing from the system.Of course, if and when central banks were to tip their hand and reveal the unprecedented synthetic shortage to the physical market, the actual cleared market may well go bid only.

India shocks observers by scrapping gold import rule

One event that may stretch the already ridiculous disconnect between physical and swap-based gold, is the announcement earlier today by India which just scrapped a rule mandating traders to export 20 percent of all gold imported into the country, in a surprise move that could cut smuggling and raise legal shipments into the world's second-biggest consumer of the metal after China.

As Reuters reports, "along with a record duty of 10 percent, India introduced the so-called 80:20 import rule tying imports to exports of jewellery last year to bring down inbound shipments and narrow the current account deficit that had hit a record.

"It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on import of gold," the Reserve Bank of India (RBI) said on Friday, without giving a reason for the change in the rule.

The reason today's announcement was stunning is that only days ago there were talks between officials of the Mumbai-based central bank and the finance ministry in New Delhi to bring back curbs on some trading houses following a surge in imports over the past few months.

Traders said before the decision on Friday that India's gold imports could climb to around 100 tonnes for a third straight month in November as dealers bought heavily on fears of curbs on overseas purchases, especially as the wedding season picks up.

The government's latest move came as a surprise even to some officials.

A policymaker associated with India's gold import policy said the government instructed the RBI at 1830 local time on Friday to urgently change the rule. A notification was posted on the central bank's website two hours later.

"We were not informed about the reason for scrapping this rule. The restrictions on who all can import who can't are still valid," said the policymaker, declining to be named as he is not authorised to talk to media.

And while those in control are unhappy that India's relentless appetite for gold is about to return, and in the process slam the country's current account deficit, at least one group is happy: "the rule change was a relief to jewellers facing difficulties in sourcing gold during the key festival and wedding season that started in October."

Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation, said the 80:20 rule was not only encouraging smuggling but was also misused by many traders.

 

From getting human mules to swallow nuggets to hiding gold bars in dead cows, smugglers had raised their activity since the middle of last year after the import curbs.

 

Following the disbanding of the 80:20 rule, the government may place a monthly or yearly quota for traders, said Sudheesh Nambiath, a senior analyst at consultancy Thomson Reuters GFMS.

 

"Quota is a more logical and simple way of monitoring and limiting gold imports," Nambiath said.

Bottom line: one can again add India to the list of end-market where hundreds of tons of physical gold will end up, never to be heard from again.

And then there is of course the wildcard of the Swiss gold referendum on Sunday, where a "Yes" vote would lead to the immediate collapse of the gold price suppression mechanism as the swap-based gold shortage breaks through merely shadow conduits and finally makes its way to the real market. Which, of course, is why it will never be allowed to happen.                 

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Fri, 11/28/2014 - 15:01 | 5497180 Tinky
Tinky's picture

Ah, so that's why it was down 2.5% today.

Fri, 11/28/2014 - 15:06 | 5497197 Arius
Arius's picture

what is the problem of using real estate, land as collateral for future currency?

 

Germany did pretty well on that advice after the hyperinflation ... also, all americans who have invested in real estate would benefit that way ... just sayin'

Fri, 11/28/2014 - 15:17 | 5497230 DoChenRollingBearing
DoChenRollingBearing's picture

Negative GOFO.  Gold price (paper gold) down sharply.

Good time to buy some physical gold.

I wonder how hard it is right now to buy in quantity (large buyers, 50 tonnes or more).  My understanding is that it is the LARGE QUANTITIES that will be the first to fail (deliveries of physical).  After that, the supply of the 1 oz coins will dry up.

Jim Willie sez that the US$ will go up sharply right before "The End".  The US$ is up.  (Paper) Gold is down.

Strange times!

Fri, 11/28/2014 - 15:19 | 5497238 IridiumRebel
IridiumRebel's picture

Silver is down almost 5%.....makes total sense.

Fri, 11/28/2014 - 15:23 | 5497253 outamyeffinway
outamyeffinway's picture

It makes perfect sense. Remember the Swiss referndum is this weekend. What we are seeing today is Psyops. They're scaring the Swiss and it will probably work as many in today's day and age are quite weak willed.

Fri, 11/28/2014 - 15:28 | 5497271 Divided States ...
Divided States of America's picture

Dont worry guys....this is like sniffing coke and getting wasted...the more you sniff, the better it feels....but eventually your body (or the system) can only handle so much and everything lets loose....we are still getting higher and higher at the moment...but things will revert back to common sense at some point.

Fri, 11/28/2014 - 15:59 | 5497353 TeethVillage88s
TeethVillage88s's picture

Problem is the Memes about Banking & Economics, and the distraction from FED being A Corporation with Stockholders, and the Elites Programing both our Universities & Government with Dribble about Economics, Accounting, Private Banks preventing Moral Hazard, and the Burying of the Truth in the Narrative about the Money Trust & US Monopolies.

- The very Idea that Private banks & Corporations don't have moral Hazard is a deeply placed Lie in the USA.

- This has gone on at least since December 1913
- Neo-Feudalism is next
- They are "Winning", the have Captured CB, Federal Government, US Congress, All Markets in US, UK
- They have overturned GAAP Accounting, Auditing, Independent Investigations
- They Created a Military-Government-Corporate Conglomerate with Central Banks through out the world, backed by WTO, IMF, WB, BIS, OECD, USNESCO, G7, G8, G20, and various Treaties like NAFTA & CAFTA-DR

This can go on a long time... Think Dark Ages, Think Debt Slavery, think parents selling kids into apprenticeship programs, Indentured Servants, Debtor Prisons which manufacture on the side

Fri, 11/28/2014 - 16:36 | 5497414 macholatte
macholatte's picture

 

Listen to that sound.... do you hear it? Is that the sound of closed gold mines?

No gold mines shut down?  Gold supply still available?

Then is that the sound of more Gold Bullshit hitting the fan?

Gold price was manipulated ... fact.

Gold price is still manipulated .... probably.

There is no "market" for gold. Only con-games from banksters.

Gold Casino craps table. Roll the gold dice. Seven you win. Seven you lose. Free drinks for players.

 

Fri, 11/28/2014 - 17:21 | 5497518 macholatte
macholatte's picture

 

He who has the gold makes the propaganda.... and keeps the gold.

 

If the referendum passes, Switzerland's gold reserves would effectively become worthless and greatly increase economic risk for the tiny European nation, the US investment bank said in a note entitled Gold: A 6000-year-old bubble revisited.

Swiss gold referendum 'makes little sense': Citi

http://www.smh.com.au/business/swiss-gold-referendum-makes-little-sense-...

 

 

Fri, 11/28/2014 - 19:12 | 5497802 kliguy38
kliguy38's picture

ignore the noise and stack.........you can't beat the bankers on paper price games just accumulate. BTW the true power will have their physical when they decide to turn it

Fri, 11/28/2014 - 23:17 | 5498266 Big Slick
Big Slick's picture

   @ macholet... GREAT article about citi. read the last two paragraphs. you wont believe the chief economist for citi could say that... on second thought I guess that's why hes the chief economist for citi. .

 

Sat, 11/29/2014 - 03:00 | 5498565 Pinto Currency
Pinto Currency's picture

 

 

China and Russia are no longer increasing dollar denominated assets and are buying gold and other assets with USD as soon as received through trade. 

And they want physical gold not the NY/London virtual pretend gold.

http://www.gold-eagle.com/article/grandmaster-putins-golden-trap

The 100+:1 paper to gold leverage ratio at the LBMA works much faster in reverse (i.e. when the physical is removed) - which is what is happening

Sat, 11/29/2014 - 10:00 | 5498801 fockewulf190
fockewulf190's picture

"It makes perfect sense. Remember the Swiss referndum is this weekend. What we are seeing today is Psyops. They're scaring the Swiss and it will probably work as many in today's day and age are quite weak willed."

If that bankster had any sense, he would have ranted in french and german.  Then, maybe he could have tweaked a Swiss vote or two into voting no.  Blathering in english just turns you into a target for the cyber  tomato throwers.

Sat, 11/29/2014 - 07:51 | 5498704 samcontrol
samcontrol's picture

Sorry , i have asked this questions too many times.

IF one CANNOT have access to physicall gold and HAD to play gold in this rigged market. What would you buy. Here is my top 5.

1) PSLV
2) PHYS
3) CEF
4) SLW
5) Silver miners

Do i give up take huge losses and buy real estate ?

i do need help.

Sat, 11/29/2014 - 11:58 | 5498917 fockewulf190
fockewulf190's picture

I would say go with Sprott´s Gold and Silver funds and forget the rest.  At least you know for sure the gold and silver is there backing up the shares. It´s still paper, but if you must play with paper, it´s at least cardboard.  Don´t be the weak hand who gets suckered into panic selling.  This entire world economic system is built on quicksand.  Forget Real Estate for the moment unless you have a serious plan that would generate instant capital income that way outpaces your costs for owning property.  I´d wait until the bubble blows first though.  And take your chump change and start buying some phyzz on the side.  It´s crazy not having any.

Sat, 11/29/2014 - 12:54 | 5499110 samcontrol
samcontrol's picture

Hi and ty.

Real estate in Argentina is ridiculously cheap to maintain.
I pay $150 tax on my house per year and returns about 5% on rent.

But yes, i could get cheaper prices to buy in the future .

I,,ll go with more Sprott and king dollar for a while, i should win with one of the two?

Fri, 11/28/2014 - 22:01 | 5498168 indygo55
indygo55's picture

The trolls are out tonight and I know why. The Gold initiative scares the hell out of the cabal. 

If this thing goes down with a no its still good for gold for the following reasons:

1. The initiative has brought the world out to question, right or wrong, the need for gold,

2. The obvious and blatent propaganda exhibited by the PTB is showing what a sham our leaders are,

3.The focus has now been broughti on manipulation not just in gold and silver but in every market rendering our markets a showcase of criminal fraud,

4.  The Swiss people can simply work around a no vote by becoming their own central banks and turning their Euros and Francs into Gold,

I don't know, maybe there are several other reasons it will be good in the end because in the end, this party is going down. This global bubble of all things financial is gonna pop and if the inverted pyrimid theroy is true, the only hing that will restore sanity to all people will be that which has srved this very purpose for all humanity, gold. And silver too.

IMHO

 

 

Sat, 11/29/2014 - 08:02 | 5498717 samcontrol
samcontrol's picture

ok that almost answers my question..

If i have a50% chance of not getting scammed by SPROTT funds , i am all in !

Fri, 11/28/2014 - 15:30 | 5497287 unwashedmass
unwashedmass's picture

Have relatives in Switzerland -- they and all their friends are voting FOR the initiative......they don't know one person voting NO.  What they are concerned about is irregularities in voting, or an outright rigging of the vote.....which the SWISS, with their proud history, are very apprehensive about.   

And given the large US presence in Switzerland oddly now......and American bankers' with their nuts on the line, they know that this is very, very, very possible. 

The Swiss are not as dumb as the Americans. Not by half. 

Fri, 11/28/2014 - 15:42 | 5497312 FieldingMellish
FieldingMellish's picture

"You know, comrades, that I think in regard to this: I consider it completely unimportant who in the party will vote, or how; but what is extraordinarily important is this — who will count the votes, and how." - Uncle Joe (Stalin)


Fri, 11/28/2014 - 16:43 | 5497427 new game
new game's picture

1 for you, 2 for me.

day later

20 % gold backed franc looses by overwelming majority

suprise, suprise

and polls were say'g a "close one".

ha, ...

you are dealing with judge and jury sponsored by bankers. hello?

anyone home? expecting the right thing to happen?

you fucking idiot...

Fri, 11/28/2014 - 16:51 | 5497450 new game
new game's picture

i was counting the big vs little holes in some swiss cheese and i can safely predict big holes out numbered small holes and that, without a doubt, tells me the referendum will go down in a puff of smoke...

Fri, 11/28/2014 - 16:57 | 5497476 SoberOne
SoberOne's picture

My nephews, 4, 5 and 6, just had 3 contracts settled. 3 oz, delivered in the hand.

Fri, 11/28/2014 - 18:39 | 5497691 in4mayshun
in4mayshun's picture

You hand out $1200/oz gold coins to your nephews??? Must be nice to be part of the 1%...

Fri, 11/28/2014 - 18:54 | 5497741 Tinky
Tinky's picture

And that was just for finishing their homework!

Fri, 11/28/2014 - 20:44 | 5498037 Not Too Important
Not Too Important's picture

I don't know about the .01% part, but these kids may be learning to survive when most won't.

We bitch and bitch here, over this or that, but at the end of the day, our kids and their kids are absolutely, overwhelmingly fucked.

Fri, 11/28/2014 - 21:02 | 5498081 SoberOne
SoberOne's picture

I'm flattered but not even close. I just don't want to die with it. I'll die soon.

Fri, 11/28/2014 - 21:16 | 5498106 Not Too Important
Not Too Important's picture

May you rest peacefully in Valhalla, SoberOne. I can tell you have fought the good fight.

Fri, 11/28/2014 - 22:59 | 5498237 TahoeBilly2012
TahoeBilly2012's picture

Amen.

Sat, 11/29/2014 - 12:12 | 5499008 fockewulf190
fockewulf190's picture

"On a long enough timeline....." and all that jazz.  That was a very good move on your part.  Do those kids another favor and write them a letter for the future.  Pass on your knowledge.  Don´t take it to the grave with you.

Sat, 11/29/2014 - 12:56 | 5499123 samcontrol
samcontrol's picture

fuck sober one that sucks!
Gl brother.

Fri, 11/28/2014 - 15:57 | 5497351 Winston Churchill
Winston Churchill's picture

As are all of my numerous Swiss relatives, not one single nay amongst the whole bunch.

Fri, 11/28/2014 - 17:00 | 5497485 SoberOne
SoberOne's picture

Post a Swiss "wHite pages" so we can grassroots cold call people.

 

"Hi, I'd like to make you and your children's future better... all you have to do is..."

Fri, 11/28/2014 - 17:47 | 5497577 Winston Churchill
Winston Churchill's picture

Its avalable online.

Fri, 11/28/2014 - 20:45 | 5498045 Not Too Important
Not Too Important's picture

What will the Swiss people do if the referendum fails and fairly well-trusted exit polls indicate 75+% voted for passage? I'm not familiar with the Swiss government/canton structure.

Sat, 11/29/2014 - 11:29 | 5498902 Bastiat
Bastiat's picture

Bush, Ohio.  But the Swiss public likely won't swallow it.

Fri, 11/28/2014 - 16:04 | 5497361 bwh1214
bwh1214's picture

Your comments are much more interesting than the article itself.  Can you give any more information about your swiss contacts, do you really think there is a chance of a yes vote?  

Fri, 11/28/2014 - 16:12 | 5497383 Kaiser Sousa
Kaiser Sousa's picture

'Traditionally, the West has used two methods to eliminate the threat to the hegemony of petrodollar model in the world and the consequent excessive privileges for the West:
One of these methods - colored revolutions. The second method, which is usually applied by the West, if the first fails - military aggression and bombing. But in Russia's case both of these methods are either impossible or unacceptable for the West.

Because, firstly, the population of Russia, unlike people in many other countries, does not wish to exchange their freedom and the future of their children for Western kielbasa (meat sausage). This is evident from the record ratings of Putin, regularly published by the leading Western rating agencies. Personal friendship of Washington protégé Navalny with Senator McCain played for him and Washington a very negative role. Having learned this fact from the media, 98% of the Russian population now perceive Navalny only as a vassal of Washington and a traitor to Russia's national interests. Therefore Western professionals, who have not yet lost their mind, cannot dream about any color revolution in Russia.

As for the second traditional Western way of direct military aggression, Russia is certainly not Yugoslavia, not Iraq nor Libya. In any non-nuclear military operation against Russia, in the territory of Russia, the West led by the US is doomed to defeat. And the generals in the Pentagon exercising real leadership of NATO forces are aware of this. Similarly hopeless is a nuclear war against Russia, including the concept of so-called "preventive disarming nuclear strike".  NATO is simply not technically able to strike a blow that would completely disarm the nuclear potential of Russia in all its many manifestations. A massive nuclear retaliatory strike on the enemy or a pool of enemies would be inevitable. And its total capacity will be enough for survivors to envy the dead. That is, an exchange of nuclear strikes with a country like Russia is not a solution to the looming problem of the collapse of a petrodollar world. It is in the best case, a final chord and the last point in the history of its existence. In the worst case - a nuclear winter and the demise of all life on the planet, except for the bacteria mutated from radiation.

The Western economic establishment can see and understand the essence of the situation. Leading Western economists are certainly aware of the severity of the predicament and hopelessness of the situation the Western world finds itself in, in Putin's economic gold trap. After all, since the Bretton Woods agreements, we all know the Golden rule: "Who has more gold sets the rules." But everyone in the West is silent about it. Silent because no one knows now how to get out of this situation.

If you explain to the Western public all the details of the looming economic disaster, the public will ask the supporters of a petrodollar world the most horrific questions, which will sound like this: - How long will the West be able to buy oil and gas from Russia in exchange for physical gold? -And what will happen to the US petrodollar after the West runs out of physical gold to pay for Russian oil, gas and uranium, as well as to pay for Chinese goods? No one in the west today can answer these seemingly simple questions. And this is called "Checkmate", ladies and gentlemen. The game is over.

http://www.gold-eagle.com/article/grandmaster-putins-golden-trap

Fri, 11/28/2014 - 16:56 | 5497469 James_Cole
James_Cole's picture

Your comments are much more interesting than the article itself.  Can you give any more information about your swiss contacts, do you really think there is a chance of a yes vote?  

Very unlikely. It's not a conspiracy either, lots of people voting no. 

Fri, 11/28/2014 - 17:48 | 5497576 Winston Churchill
Winston Churchill's picture

Are you a Swiss ?

Do you have Swiss relatives, or any connection to Switzerland ?

Just wondered where you're getting such profound insight from.

Fri, 11/28/2014 - 18:12 | 5497630 James_Cole
James_Cole's picture

Do you have Swiss relatives, or any connection to Switzerland ?

Yes, and the vote is headed for almost certain failure. I'm sure you guys will have great conspiracy theories on sunday night to explain away what is perfectly obvious / expected. 

Fri, 11/28/2014 - 18:30 | 5497664 Winston Churchill
Winston Churchill's picture

Bullshitter, as usual with your statisrt/banker cocksucking posts.

Fri, 11/28/2014 - 19:01 | 5497768 James_Cole
James_Cole's picture

Ok we'll see who's right on Sunday. The statist bullshitter or the British imperialist.

Fri, 11/28/2014 - 20:22 | 5497986 Winston Churchill
Winston Churchill's picture

So you admit you're a coscksucker.

Fri, 11/28/2014 - 23:08 | 5498255 TahoeBilly2012
TahoeBilly2012's picture

After they vote no on gold, they should all be forced to eat American Cheese Fondue everynight.

Sat, 11/29/2014 - 09:37 | 5498785 Idaho potato head
Idaho potato head's picture

Made with velveeta....:)

Sat, 11/29/2014 - 20:36 | 5500100 fockewulf190
fockewulf190's picture

Expired of course.  Better yet, the "cheese" packs that you find in MRE´s are really a special kind of evil.  That would cause the Swiss to howl enmasse amongst the Alps.

Fri, 11/28/2014 - 18:17 | 5497644 disabledvet
disabledvet's picture

Please explain "gold as collateral." I understand "Bank as collateral" now ("that will be ten trillion dollars") but not "gold as collateral." Also...please explain how you know anything about "gold supply."

If I have 100,000 tons would that matter relative to price? Obviously I would need a very good forklift....

Fri, 11/28/2014 - 18:31 | 5497670 Theta_Burn
Theta_Burn's picture

o.O

Sat, 11/29/2014 - 00:35 | 5498418 disabledvet
disabledvet's picture

I understand gold at 100,000 dollars an ounce.  Can you explain to me gold at 1000 dollars an ounce?

How about "gold at one hundred dollars an ounce with all known gold mines closed"?

I mean seriously....I can think of only ONE reason why gold prices...let alone silver!...decline.

On the other hand perhaps someone can explain why the dollar keeps surging as well.

To get an A+ on this project you will attempt to combine both.

Do NOT follow this link or you will be banned from the site!