GOFO Rates Drop Further On Supply Concerns

Gold forward offered rates (GOFO),  remain negative and are becoming more negative. This shows that physical demand is leading to supply issues in the highly leveraged LBMA gold market.  GOFO  rates are those which  contributors may use to lend  gold on a swap for  dollars, according to the  London Bullion Market  Association and the negative gold interest rates show a preference to own gold over dollars by bullion banks.
Negative 1, 2, 3, & 6 month GOFO rates mean that bullion banks lent their customers, including other bullion banks, gold to obtain a positive return, thereby increasing the “paper” gold supply. Some may now may be struggling to get their gold  back which may explain the significant decline in COMEX gold holdings of certain bullion banks. This is creating significant supply demand issues in the physical gold market which should lead to higher gold prices.

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From Goldcore:

Today’s AM fix was USD 1,375.25, EUR 1,031.39 and GBP 878.47 per ounce.
Friday’s AM fix was USD 1,360.75, EUR 1,020.59 and GBP 870.10 per ounce.

Gold rose $10.10 or 0.74% Friday, closing at $1,373/oz. Silver climbed $0.25 or nearly 1.09%, closing at $23.18. Platinum rose 0.2% to $1,524.49/oz, while palladium increased 0.3% or $2.47 to $761.47/oz.

Gold was up 4.60% and silver surged 13.3% for the week. Silver is up eight sessions in a row and is headed for the longest daily rally since March 2008.

Gold remains in backwardation and gold lending rates dropped further last week which is bullish for prices in the coming weeks.


Gold in USD and LBMA Gold Forward Offered Rate – Bloomberg Precious Metals Mining

Gold traded near a two-month high after holdings in the largest ETP posted the first weekly expansion this year and markets digested the very robust global physical demand data reported last week . Demand from China and India is projected to to soar to 1,000 tonnes each in 2013 and mixed U.S. data has boosted gold’s safe haven appeal.

Gold forward offered rates (GOFO),  remain negative and are becoming more negative. This shows that physical demand is leading to supply issues in the highly leveraged LBMA gold market.

GOFO  rates are those which  contributors may use to lend  gold on a swap for  dollars, according to the  London Bullion Market  Association and the negative gold interest rates show a preference to own gold over dollars by bullion banks.


LBMA 1 Month, 2 Month, 3 Month GOFO Rates (2006 to Today) – Bloomberg Precious Metals Mining

Negative 1, 2 and 3 month GOFO rates mean that bullion banks lent their customers, including other bullion banks,  gold to obtain a positive return, thereby increasing the “paper” gold supply. Some may now may be struggling to get their gold  back which may explain the significant decline in COMEX gold holdings of certain bullion banks (see commentary).

This is creating significant supply demand issues in the physical gold market which should lead to higher gold prices.


Gold Prices/ Fixes/ Rates / Volumes – (Bloomberg)

In the futures market, hedge-fund managers and other large speculators increased their net-long position in New York gold and silver futures in the week ended August 13, according to the U.S. Commodity Futures Trading Commission data.

Speculative long gold positions outnumbered short positions by 53,926 contracts on the Comex. Net-long positions rose by 2,291 contracts, or 4%, from a week earlier.

Gold miners, producers, jewelers and other commercial users were net-short 60,874 contracts, an increase of 6,715 contracts, or 12%, from the previous week.

Speculative long silver positions outnumbered short positions by 12,709 contracts. Net-long positions rose by 7,242 contracts, or 132%, from a week earlier.

Miners, producers, jewelers and other commercial silver users were net-short 20,276 contracts, an increase of 9,976 contracts, or 97%, from the previous week.

The potential for a short squeeze remains high. Dollar, euro and pound cost averaging into positions remains prudent.

This is  especially the case as we are soon to enter the seasonally favourable autumn months.

NEWS
Gold Seen Rallying by End of Year as Physical Demand Gains – Bloomberg

Gold Advances to Two-Month High on Investment, Physical Demand – Bloomberg

Gold demand may remain strong, but jewellery makers to take a hit – Business Week

Gold Bears Retreat as Prices Reach Two-Month High – Bloomberg

COMMENTARY
“Potential For Disaster” In Gold Market Says Hambro – The Telegraph

JPMorgan Is Selling The Building That Houses Its Gold Vault – Zero Hedge

Signs of the Top – Mauldin Economics

Trade Off: A Study In Global Systemic Collapse - Feasta

 

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Comments

  1. “which should lead to higher gold prices.” 

    I lol’d.

  2. Their going to have to let PM’s move higher to alleviate demand. That would seem to be the logical action.
    But the Genie maybe out of the bottle.

  3. My question is how high will gold need to go before more supply comes forth?  The supplies of gold are strained, given the comment made to Bloomberg that an 8 week waiting period was common.  As gold is being bought by the 100-500 ton tranches, when will gold simply not be available?  It is a vitally important metal. With dozens of hands stretched out to hold it, somewhere along the line gold must go up substantially
    IMO the industrial and commercial cost of gold is immaterial. The amount of gold used by businesses is only a tiny particle for each electronic item manufactured  Thus the price to that end is immaterial
    So if gold was $3,000 an ounce the price should be meaningless to anyone except the owners of that physical asset.  Correct?
    No, but I don’t know those who would think this price meaningful and harmed by its rise.
    If that is correct then $3,000 gold is just a number along the way to $10,000 an ounce.  To be sure the US dollar holders would be scared to death. Oil  prices would shoot to the moon.  The DOW would fall by 50-75%.  But the smart money holders of gold would finally see their patience rewarded and also see vindication of the rightness of their position that gold is real money.

    • Along the same lines, that question may also be asked for silver:
      How high will it need to go before more supply comes forth?”
      My ‘litmus test’ is the number of ads on the local craigslist from folks selling their silver.
       
      And there is still a dearth of them, compared to when silver was above $25/oz.

    • On the Craigslist in Maine you won’t find many people selling Silver, maybe one ot two, as most people are looking to buy.

    • Both gold and silver production have been curtailed recently, sometimes due to mines collapsing or flooding, sometimes due to labor unrest, and perhaps also due to prices that have fallen below the cost of production.  But the thing is, if gold and silver prices are forced too low, mines will be shuttered, and if they are it could take a considerable time for them to get back into full production.  I don’t think that a lack of metals and rising prices will cause the owners of those mines to reopen them quickly.  They will want to watch the situation for a while before they put their capital at risk for what might be a temporary price rise.  This could get very interesting, boys and girls.  Hang on tight and keep any limbs you care to keep fully inside the trolley at all times.

  4. Well they say JP Morgan has the gold market controlled, so what’s stopping them from holding down the price of gold and letting silver prices rise and they buy more gold when the ratio gets very close between them and people will be dumping gold to buy silver?
    But smart me will be Selling Silver and Buying Gold when the ratio gets closer also.

    • @Marchas45
       
      “But smart me will be Selling Silver and Buying Gold when the ratio gets closer also.”
       
      So, Charlie, Mr. SD Silver Guru… WHEN will that be?  What ratio will tempt you to trade some of your silver stash for gold?  :-)

    • @Ed_B I will trade when it gets below 15-1 but hopefully 5-1 and that will be sometime early next year or sooner. Honest. Lol  Keep Stacking

    • Woa nelly,
      you’re betting your reputation on that claiming silver will be at 15/1 to 5/1 early 2014 or earlier?
      And at that point, what do you reckon gold to be at?

    • What Reputation?  LMAO As for gold I’m a silver man so I’ll say $1565.00 Lol
      By the way Proverbs don’t take everything you read seriously. Lol

  5. @Marchas45
     
    WOW!  That is what I call a GUTSY call, Charlie!  Makes me want to run out and trade my gold for silver RIGHT NOW!  lol
     
    The next couple of months should be VERY interesting in the PM world.  It will be fascinating to see how this all plays out and whether we see a significant resolution of the current drifting market or some solid moves in either direction.
     
    The ASE order I made on 8/5 has still not shipped.  This is unusual for Provident.  They usually ship in about 10-12 days, so this is a little longer than usual.  One would hope that this is not due to any stock shortage at Provident and that when they say they have something in stock it really IS in stock.  If not, then the market can interfere in filling orders in a timely way and that’s not a good thing at all.  
     
    I have had that experience at another on-line vendor that I no longer use.  I can handle almost anything if people are honest and up-front with me.  But lying is not something that I choose to accept as a valid business tactic.  This same vendor also edited a review that I posted on their site because they did not agree with my assessment of their timeliness in shipping their product.  I have no problem with them disagreeing with my position but they should simply post what I wrote and then add their own rebuttal, not change what I wrote and make it look like this is what I said… because it was not.  Anyway, this vendor said that they had gold Maples in stock, so on that basis, I ordered 5 of them.  Well, 3 weeks later I had not heard from them, so emailed them to ask about the status of my order.  After a few days, I got an email saying that they were “expecting to receive a shipment any day now” and that when they did, my order would be among the 1st they would ship out.  All well and good except that if they had the coins in stock, as they originally promised, why would it matter if a shipment of more coins came in or not?  Of course, it wouldn’t.  The only reasonable conclusion I could draw was that they lied about having coins “in stock” to get me to place an order.  They did not reply to my email inquiry on this issue.  Because of that, I fired them and they are no longer a recommended PM vendor, no matter how good their prices are.  Oh, yes, one other point on this… the BBB rates this company an “F” as to shipping products to customers.
     

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