Charts in Focus – GOFO Squeeze
November 27, 2014
There is a big squeeze under way in the gold leasing market, a condition which is usually followed by a meaningful gold rally in the weeks that follow.
The London Bullion Market Association publishes data each day on the Gold Forward Offered Rate, or GOFO. These are rates at which LBMA members are prepared to lend gold on a swap against U.S. dollars. Right now, all lease periods out to 6 months are showing negative rates, meaning that the lessors are willing to actually pay you to borrow gold from them.
The chart above shows the 1-month lease rate back to 1995, and we can see that the negative lease rates we have seen in 2013-14 are a truly rare event. Only 4 other times in history has this 1-month lease rate gone negative, and all were associated with important lows for gold prices. This is a bit of an unusual time, though, because interest rates generally are low right now.
Those of us who follow these lease rates typically compare them to the same term LIBOR rate (London InterBank Offered Rate). That helps to normalize the lease rates for what other rates are doing at the moment. Just recently, that spread has widened to the largest degree since the 2008 commodities bubble collapse.
Thus far that squeeze has not started to matter much for gold prices. But we have a lot of history on these data, and every time a squeeze like this starts, it eventually leads to a sizable rally for gold prices in the weeks or months to follow. So I am confident that this one is going to “work” as well, perhaps after the Nov. 30 Swiss referendum on its central bank gold reserves.
Tom McClellan
Editor, The McClellan Market Report
www.mcoscillator.com
(253) 581-4889
The Referendum is generally seen to be negative for gold prices because it is assumed the Swiss will vote “NINE”. Afterall, the Technocrats are in charge of public perception in Europe, (‘good is bad’, and ‘bad is good’). Regardless, the GOFO squeeze is underway!
Down is up and black is white.
In more financial terms; Down is up and red is black.
This market is insane. As long as we survive this, we may laugh at it later. Far worse than 2008.
This is a period of massive money printing rotating through all the major central banks. It should be the most inflationary time from here on. It is the exact time people don’t want to buy insurance but they should. I guess people are hopeless.
I hope so Lawrence. I almost run out of energy to laugh though 🙂
Agreed, Alberta is pricing oil at $75/ bbl. This is a quick reaction that did not happen in 2008 and is a sign that they will likely be wrong again as the price is based politically and not by a true supply and demand. Can the Saudis really pump oil at this pace for long?
Alberta is in real trouble if this stays for more than a few months. I think we are paying for not able to have easy access for markets. If we do, companies should be floating on cash and it is going to be easy. Talked to premier last month, there is no easy solutions. We have to endure this. Federal government should re-exam their leadership seriously to make sure the only province working to survive. Hope they keep up.
Easy solution; quit giving Ontario money.
Not a slight against Ontarians as such but of their governance.
I guess you mean Ottawa. Good idea. I hope they thought about it and especially have the guts to do it. Jim Prentice is a nice guy. I will see whether I can pass this message to him. But I doubt it.
Yes, Ottawa, through the transfer system Ontario is a “have not” province.
Dan, Ontario is a socialist sponge, the people voted for the Wynn government because she advocated free programs and now she is busy trying to fund her welfare province. The conservatives didn’t stand a chance in the last election because they wanted to lay off 100,00 government workers, the electorate here never sees the government as the problem only the solution. So for now it’s spend, spend, spend and build up the debt.
Thanks DT, I was hoping to here from an Ontarian.
Alberta can always go into the petroleum jelly industry. By the looks of it we will need a lot of Vaseline once this house of cards comes crashing down.
I think we have farms and trees and tourism and, damn’ I wish we could sell cold to the hot spots in the world.
lmao I’m an Albertan from On. trying to make $ on xle…did this am but volume dropped like a stone and ironically it’s rising in price! Now xle is at 79.90 and oil is hovering around 66! anyone want to try and explain that? is there a better etf for following oil price?
who says they will deliver…………..maybe just a ploy to sink the RUSSIAN’S
It happened in late 80s and worked.
by the way I made 1 grand in puts in xle thanks to Rick’s aggressive call for oil to drop to 56 (possibly) I’m eager to hear from the ta’s today!
The Saudis are lying about their output. The stuff going to China since 2010 is off the petrodollar books.
they have to lie…….or else the USA, will pull their protection away from the royal family.
Obama should issue exec order to subsidize oil industry with trillions the fed prints sitting idle or they all go bust.
They may.
IRELAND NO. 5. who would have thought……………..I like no. 15….Costa Rica,
sorry…..Ireland dropped to no. 11………..sorry Tony…….
Did anyone else notice that the top five countries are extreme north or extreme south countries? Maybe this helps keep the ‘crazies’ out.
I wish the swiss people lead the world to sound money and expose all the fraud central banks et al. are doin. Well can only hope and don’t hold high on a yes result vote.
In correlation with US Black Friday sales, I note that Gold is on sale for a few days.
(For the peasants, silver will also be available cheaply, and is, in fact, a better buy.)
Do you think this is an unintended consequence? Gold goes into India but not much leaves her. My physiotherapist from India says his mother would spend all of her money on gold if she could and wear most of it.
This is a good news. Is it reliable? I think Indian government is under a lot of pressure. Its currency will be crahsed by Wall Street if they dare to carry it out.
Bankster interests are pretty much aligned globally. The implementation of the restrictions and now the scrapping of them was well planned in my opinion.
This is good news and I do think the story is reliable.
Does not do much though Matthew? No single news even war was able to excite gold. I see nothing now except some default on comex. Not sure even successful repatriation could as it can b just number exchange from NY fed to dutch or german cb.
Thus destroying the whole ideal of gold being; ‘if you drop it on your foot, it hurts.’
I wouldn’t be too concerned about the action on the day of any central bank decision that is positive for gold. They ALWAYS hit gold at such times.
I bought GDXJ calls right into the lows today. We’ll know soon if I am going to regret it.
This looks like punishment for trying to start a competing cartel.
I bet you’re right. Just look at the charts for EXK, FSM, SIL, SILJ, AXU, IPT.V, etc. None have made new lows.
Excellent point, Matthew.
Matt not sure how calls work do they have a timeline? I just stick to simple common shares etc. But many of you love them calls and options and yada yada :)..
They sure do have timelines. By choosing the right strike price and expiration date, you can tailor your bets to suit your goals, risk tolerance, and even ability level. For example, if you’d like to get some leverage but don’t like using margin debt and also don’t trust yourself to get the short term timing right, you can buy calls that don’t expire until 1/2016 or 1/2017. Of course, you won’t get as much leverage as you would with ones that expire sooner, but you also won’t get the same risk. Among those that I bought today, some expire next Friday.
I could buy a lot of shirts for the one I lost on options. Not for amateurs in my opinion.
Definitely not for amateurs, but buying January 2017 calls with a 25.5 strike (which I do not own) is hardly more risky than owning the shares of most juniors in my opinion.
Matt,
Great way to sum it up for me in such short words. So you answered my second question which was how early can you them. I like the strategy. What type of account do you need. I don’t use margins anymore as I’ve learned my lesson.
Geeze the other calls are so far out. Pretty impressive if your a visionary like me 🙂
Glen, I use Interactive Brokers for stocks, warrants, options and like the platform a lot. There’s not much you can’t do in any market in the world with IB.
Btw, I just checked and I was mistaken; there is a Jan ’17 26 call but no 25.5.
Let’s say that you “know” that GDXJ is going to be substantially higher by Jan ’16. Why not buy calls with a 27 strike for $500 per contract (it is priced at $5 on your screen because each contract is based on 100 underlying shares)? If GDXJ is $57 when your option expires, you would have $3,000 or 6x your money. If, on the other hand, if you put your $500 into the shares, you would have just over double your money.
At the other end of the spectrum, today you could have bought calls that expire next Friday with a 26.5 strike for $50 per contract. If GDXJ were to finished next week at 31.5, you would have ten times your money.
Thanks Matt,
What are there fees per trade? Well I guess i could take a look.
Puts= a prediction of price decline, calls of a rise…Rick’s 2 week no obligation free trial is well worth your time! There is a blog available for any who choose to ask questions.
Wish you luck…man… I am no match to do any options… as the chance on that will be as good as gambling.. :)… GOFO is poised very mature… (http://www.321gold.com/editorials/mcclellan/mcclellan112814.html)
If Draghi does not deliver anything new next Thu… EURUSD bear could get squeezed…(https://www.tradingfloor.com/posts/bear-trap-possible-in-eurusd-next-week-2623287) … sorry.. I keep referring to articles without my self-initiated thought… I’m just novice.
What do you think about these two articles on whether they are any reasonable?
Saw that Matthew!
golds 1168 right now, maybe norcini is right the only thing levitating the price has been the swiss vote, dropping as more people figure is no way the banks going to allow a yes vote?
hmm Birds 968 going to materialise?
I wonder how long france Belgium etc aking for their gold back to affect the price?
I wonder if it will matter at all, youd think it would tho.
A little more up is down maybe? lol
Gold is only down appreciably in American dollars it’s still around $335 CDN.
$1335 CDN
they could have taken it down yesterday…., but, wanted to slip in BLACK FRIDAY….DOOM AND GLOOM………….
Im not sure bb but id have to say yes at this point. Its only a matter of timing. By the way the tsx and its miners continues to drop more and more. There is going to be a monster gap down at the open on monday from what I see.
I disagree with Norcini. How can the vote levitate gold when no one expects a positive outcome? If anything, I’d say the vote has people putting on spec shorts in anticipation of small investor disappointment.
GDXJ did manage to hang on to the 61.8% retracement of its rally off the low.
http://stockcharts.com/h-sc/ui?s=GDXJ&p=D&yr=1&mn=0&dy=0&id=p08741069657&a=378247309
Down 12% in hours and very oversold on the 60 minute chart, how can I NOT buy?
Hi Matthew, got a question pls… in your chart, there is a huge gap this morning around $27-$29.. because yesterday was holiday in US… so in terms of TA, all gaps even like this one which is due to holiday is subject to gap-filled at some point?
That gap will definitely get filled. We just don’t know when or how much lower it will go first. Considering the Swiss vote, the news out of India, and the fact that most professionals were probably away from their desks today, I think it will get filled very soon even if it then turns down again.
thanks man!
Great answer Matt 100%
Gaps always fill sooner or later.
Thanks man
No market wrap with doc?gary?rick?temple?
I THINK they are busy with the weekend show………………
i just realized it’s a half day so people can continue digesting turkey :-/
Gold shortage while price tanks?
Yeah yeah I know it’s the paper price.
BS
THOSE Swiss who vote No deserve the misery they will get
The NO vote – I think is already factored in the the crimex price now!
SD Marc not fully id beg to differ
Glenfish,
I BEG TO DIFFER WITH MYSELF!! hahahahaha!
hahaha
This was another orchestrated takedown.
Gold was wacked aka Tony Soprano.
Perhaps, but I lean to computers and large players just getting out at any price once the $1178 area failed. A slow decline down to $1180 partly due to swiss vote and partly due to no perceived inflation worries, then a rapid fall when that price did not hold. If I would subscribe to takedown, then I would be despondent that it would ever be worth investing in gold. I had been ignoring the shills for a year and a half. Wish I had continued because today was painful emotionally, but not too bad financially since I controlled my position size. Gold will shine again someday, just not now.
Yes, we’ll have to wait until Monday for gold to shine again. 😉
Hope so, Matt. I left half my position invested in case. However, I cannot foresee a situation whereby we get a lasting rally until inflation is perceived to be a concern. So I am left with get out after a rally so I can retain some gains. To me, it appears to still be clearly a bear market, and I am just trying to capitalize on counter trend rallies.
Im not sure it was orchestrated james as to blantly out there that buy the rumour sell the news. I mentioned this a million times. I played my cards till i could not hold the fort much longer without losses. I entered at the bottom but sold then re-entered. So i did not have that extra cushion as other did.
Another discussion of the same thing. You are most definitely not being paid to lease gold:
https://www.bullionvault.com/gold-news/london-gold-112720142
Gold was not Manipulated, whacked or attacked….you guys really are a clueless bunch!
Anyone notice the deflationary outcome OPEC created?
Copper breaking down from a Monthly support held since 2010
CDNX breaking down again…..$GNX breaking monthly support
HUI failing to hold 169.52
Silver complete meltdown from $16.69 resistance
US$ up almost 2 cents off recent lows and $Swiss fall 1/2 cent while $Yen today swung almost a Full cent sending gold lower and the Euro$ fell hard
Global deflation is taking place in the commodity sector on a global scale.
I guess Gary and his cycles which he believes in sooo strongly got ran over at the train station, the all aboard with gold positions as the train left alright…it backed up! that along with cycle calls of much higher oil because the government was holding oil down till the elections well that was a major flop!
Swiss vote results Sun and who it will effect gold, who knows? All the bullish crap the goldbugs spew again and again have done nothing to hold up the bear trend for 3+ years
ECB meeting next week will have Draghi devaluing the Euro$ even further adding more gold weakness as US$ climbs higher.
This should be a TRADING LESSON FOR YOU ALL as why the H would you hold a position in the energy sector heading into an OPEC meeting, wait see what the results are and react correctly….gold is no different load up ahead of the Swiss vote, really, wait and see what the results are and react….of course nobody will learn as you all trade off your emotions and EGO’s !!!!
JJ, I have to agree with you on this one. Deflationary forces are picking up strength. I hate to say but I believe there is a strong chance we might see $1000 gold, maybe even lower if this small wave turns into a tsunami. Long term gold is going higher (IMHO), since the Fed will probably unleash the mother of all QE’s to fight deflation. But the recent volatility has created some good trading opportunities, at least for me.
I also think that Draghi is going to act this time around instead of talking a big game. People forget that the US dollar will be the last to fall. When will that happen nobody knows, but all other currencies will be thrown under the bus first.
Some said… Draghi cannot act because the decision from court whether full-leash QE from ECB is legal or not is due Feb 2015… we shall see.
Everyone will fall in line. They are all working towards the same goal- to keep the EU dream alive. I still haven’t seen any EU country dump the Euro and revert to their old currency, yet.
What did the last US QE do for gold?….stop wasting your time on QE and money supply its all about gold trading off currencies NOTHING MORE!!!
My thinking is the next QE will destroy confidence in the dollar. And where are investors going to run to, since all currencies are going to be worthless by that time.
chris.
How are you playing it so far? You short it? calls? options? Get in get out? etc
Good that your making money. That’s all that matters
JJ,
Really we are not clueless, just think different. Have to say I have been talking about deflationary concerns for quite awhile. I just do not visit site nor post very often. I believe u r right. But within the down trend I am still trying to capture some counter rallies to make a bit, otrw I sit it out because shorting keeps me from sleeping. So I sold half today ahead of the swiss vote, left half in in case I am wrong, and will watch the trend and decide first thing Monday am what to do. At any rate, why are you seemingly fixated on what the rest of us do, that you seem to get so worked up? I think you have a lot to offer here, though, and I appreciate hearing ‘ the other side’.
The $GNX dropped 8% from its opening price this week against gold (GLD) and is going to trend lower still. Gold just made a new 20 month high versus oil today but is overbought. Gold is up nearly 50% versus oil just since June.
http://stockcharts.com/h-sc/ui?s=$GNX:GLD&p=W&yr=2&mn=3&dy=0&id=p05429440161&a=378282313
Unless OPEC somehow shrank the money supply, it did not create a deflationary outcome.
You’ve been in denial for 3+ years Matty and wrong only trading golds pops all the way down….why don’t you come back when you’ve been right for 3 years, about anything.
Denial about what? I never said that gold is not in a downtrend. I know that you’re clueless when it comes to junior miners, but I’ve had great gains trading them along with a few big moves.
Maybe you should consider not being a dirtball and attempt to address a comment intelligently. Just a thought… what do you have to lose?
Wow, just, wow..
It’s going to be some interesting reading in here next week!
Is gold going to $567 next week? :\
This is definitely the final plunge ending the bear PM market.
Let’s see where it goes Matthew
Are you being sarcastic?
No
I hope we all make $…we are in deflation before we get inflation…which means gold and oil dropping in price temporarily…but I don’t see it lasting more than a few weeks/months as companies aren’t going to carry heavy losses for more than 1 quarter or 2 before significant layoffs occur…2008 all over again?
Maybe China is throwing some gold bars on the ships they are going to fill with oil and park for awhile.