Q&A With James Turk: Why Futures Markets Cannot Be Used to Calculate GOFO

James TurkWith the LBMA no longer publishing GOFO rates, readers have inquired why we don’t begin calculating and publishing the rates at SD. 
GoldMoney’s James Turk has responded to the inquiry with an articulate elucidation of why futures markets cannot be used to calculate GOFO (or SIFO) rates.
The futures market cannot be used to come up with GOFO. The spreads quoted in paper are far different than the spreads quoted for real metal


Turk’s full MUST READ commentary is below:

By James Turk, GoldMoney:
There is no way to create a GOFO for public consumption. And there presently is no public source for GOFO, just like there was no public source for SIFO when the LBMA stopped reporting it. SIFO was stopped because no bank was willing to actually buy/sell metal at the SIFO rate the LBMA was providing on its website.
These rates can only be calculated on bullion bank bid/ask rates, and those are not available to the public.  They are only available to bank customers. 
To make the calculation reliable, you need rates at which the bank is willing to deal.  Generally these rates are quoted in terms of one tonne of gold or silver to get a reliable picture of spot relative to distant months quoted in the forwards.
Also, to get a true reflection of the overall market – as opposed to the position of just one bank – you really need to calculate a real dealing rate of all the bullion banks to find out where the market really is.
The futures market cannot be used to come up with GOFO. The spreads quoted in paper are far different than the spreads quoted for real metal. If you look at the front month Comex futures when GOFO was negative you will still see a contango. Futures prices are used for ‘painting the tape’, and not a reflection of the tightness in the physical market.
Eliminating GOFO is just another example of how gold is being marginalized by central planners and other adversaries of sound money.
Regards

James

 

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