Physical Gold Shortage; GOFO Rate Goes Negative

Retail investors see value in gold’s decline.

Bullion.Directory precious metals analysis 6 November, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

As I mentioned yesterday (see here), precious metals are being scooped up hand-over-fist. The US Mint is sold out of 2014 silver American eagles due to a depletion of blanks. The Royal Canadian Mint had to ration their maple leaf to retailers because of short supply. Now, there is a physical gold shortage.

As reported by ZeroHedge, the physical gold shortage has deepened with prices reaching new four-year lows this week. The six-month gold forward offering rate (GOFO) goes negative for the first time since 2013, as China began its accumulation of the yellow metal.

There are also other key marks in the GOFO. The one-month rate has dropped .015 percent to negative .065 percent, the lowest since the Lehman collapse. (See here on the mirroring of precious metals 2008 collapse, Lehman and the subsequent all-time highs).

Even as gold prices seek out every analyst’s “$1,000 per toz. analysis,” retail investors are turning to tangible assets.

The GOFO rate is a rate at which contributors are willing to lend out gold for a specific period of time. They also provide a basis for gold interest rate swaps.

What is noteworthy, the GOFO rate is always positive under normal circumstances because gold is still seen as a money-equivalent.

As equities hit all-time highs every day, and one central bank after another proceed in reckless policy, we could be witnessing the worse physical gold shortage in a decade.

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