Wednesday, March 12, 2014

Another look at the GOFO, and why the caca may soon strike the helice

For your curiosity, here are the different GOFO rates plotted for various periods until today (March 12 2014). Source:, Data (Excel file)Longer data (Excel file).

I need not remind that the GOFO is the canary in the coalmine par excellence: when gold turns into full backwardation (i.e. all rates are negative and the rate curve is descending), confidence in fiat currency is officially over (and the Comex has likely declared force majeure and defaulted on deliveries). See here, here, here and here.

Updated observations:

1) The financial crisis "started" in August 2007, around the time BNP Paribas's MBS fund defaulted, not when Lehman filed for bankruptcy (although that also helped bring the GOFO down).

2) Efforts to manipulate the paper gold price and to prop-up the GOFO (by leasing fictitious gold, fixing the LIBOR, etc.) have been expensive in physical gold. This is especially true since late 2011; GOFO rates have entered their third year of inexorable decline towards permanent negative territory.

3) Since 2007, the rate curve has been inverted (12-months lower than 1-month) for 340 trading days, and fully inverted (fully descending curve) for 130 trading days. All rates have been in negative territory (except 12-months): 106, 80, 65 and 12 days for 1-month, 2-months, 3-months and 6-months rates respectively.

4) If the 12-months GOFO keeps declining as it has been since January 2012, it will hit zero in six months.

5) There seems to exist a correlation between gold "news events" and significant movements in the GOFO (e.g. Cyprus being pressured, and finally resisting, turning its gold over). Some may say the news moves markets; in some cases, perhaps the market moves the news.

6) See here. If powers-that-be are so desperate to keep the music playing that they are risking exposure to such a degree, all for a meager 40 tons of gold (10 days worth of Chinese imports), it must mean the end is near indeed.