Gold Shortage, Worst In 21st Century, Sends 1Y GOFO To Lowest Ever… And India Just Made It Worse
Submitted by Tyler Durden on 11/28/2014 13:59 -0500
While we have covered the aberration that is a negative gold GOFO rate previously and in extensive detail in this post, an abridged version of what negative GOFO means comes courtesy of Deutsche Bank’s recent discussion on what a successful Swiss gold referendum. To wit: "It is interesting to note that benchmark gold-dollar swap rates have recently traded negative, meaning investors are paying to borrow gold. This is unusual as gold is traditionally used as a source of collateral for cash financing…. [A] number of factors may play a role, such as excess dollar liquidity or an increased demand for collateral on the back of the global regulatory developments." In short a gold shortage at the institutional, read commercial and central bank, level. And not just a shortage but the biggest shortage in history, judging by today’s latest plunge in the 1 Month GOFO which just dropped to -0.5% and , worse, 1 Year GOFO that just hit its lowest print in the 21st century, and is also about to go negative: something that has never happened before further suggesting the gold shortage could go on for a long, long time!
To be sure, GOFO has printed negative in the past, although the two most prominent historic plunges were due to acute events which promptly renormalized, and were not the result of what has now become a chronic gold collateral shortage via the swaps market.
The best known example of a complete collapse in the GOFO rate, is the September 1999 Washington Agreement on Gold, which was an imposed "cap" on gold sales (mostly European in the aftermath of Gordon Brown’s idiotic sale of UK’s gold) to the tune of 400 tons per year. The tangent of the Washington Agreement is quite interesting in its own right. Recall the words of Milling-Stanley from the 12th Nikkei Gold Conference:
"Central bank independence is enshrined in law in many countries, and central bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement…At the same time, through our close contacts with central banks, the Council has been aware that some of the biggest holders have for some time been concerned about the impact on the gold price—and thus on the value of their gold reserves—of unfounded rumours, and about the use of official gold for speculative purposes.
Will $60 Oil Be The Black Swan?
November 28, 2014
If it is, I don’t know of anyone who saw that coming. I have been asserting over the past month or so that the plunge in the price of oil is the best indicator that the global economy – including and especially the U.S. economy – is collapsing.
There had been a bubble of sorts blown up in the shale oil industry. Billions in junk bonds have been issued against what is turning out to be the latest of Wall Street’s financial engineering Ponzi schemes. But what everyone seems to be overlooking is that the banks and private equity firms themselves are going choke on the billions in bank debt issued by the collapsing shale oil industry.
This is a must-read commentary posted The Automatic Earth Blog: The True State Of The Economy.
It is highly probable, in my opinion, that the crash in the price of oil not only is a signal that the U.S. economy is in trouble, it could well be the unforeseen “Black Swan” that pulls the rug out from under Wall Street and the financial markets.
I would suggest that this is why the Fed and the U.S. Treasury’s Working Group on Financial Markets – aka the plunge protection team – has been waging a relentless war on gold and silver and has been working overtime to keep the stock market from crashing.
A plunging oil price is not hurting Russia at all. In fact, if you read this article – Grand Master Putin’s Golden Trap – you see why the crashing oil price is likely the end of the petrodollar and U.S. global economic hegemony.
India scraps restrictions on gold imports
India has scrapped controversial restrictions on gold imports that have triggered a spike in smuggling and crippled the country’s jewellery industry.
On Friday the Reserve Bank of India reversed rules that force agencies importing the precious metal to set aside a fifth of all shipments for re-export, reports Avantika Chilkoti in Mumbai.
The restrictions were put in place in the middle of last year as a currency crisis swept through emerging markets and the Reserve Bank of India scrambled to control the current account deficit.
The move comes despite the recent increase in gold imports.
Official data show gold imports reached 106.3 tonnes, or $4.2bn, this October, almost four times the shipments in the same period a year earlier.
India overtook China to regain its position as the world’s largest consumer of gold in the third quarter of this year, according to the World Gold Council, with demand reaching 225 tonnes in the three-month period.