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Albert Sung is the author of the Katchum Macro-Economic Blog, monitoring breaking economic news from a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at... More
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  • Long Term GOFO Rates Hit New Lows 0 comments
    Apr 15, 2014 11:37 AM

    If you really think that gold is going to crash, I need to point out one thing and that's the GOFO rate.

    Recently, the 12 month GOFO rate has hit a new low we have never seen since 1989.

    (click to enlarge)

    Let's zoom in to 2009-2014: We have a new solid low here.

    (click to enlarge)

    So not only the short term GOFO rates (1 month to 3 months) are negative now, also the long term GOFO rates are hitting new lows. So there is a tremendous stress building in the gold market. Historically negative GOFO rates are bottoms in the gold price.

    This makes me very bullish in gold at this moment. Because gold lease rates are now much higher than the interest rates/bond yields. This indicates to me that the bond market is about to collapse, bond yields will be going higher, because gold lease rates cannot be higher than the corresponding bond yields. Either bond yields will be going up, or gold has to go up. It's one of the two.

    On another note, we see that the Federal Reserve tapering, is actually just talk. Because some entity is buying U.S. bonds via Belgium at a rate of 30-40 billion USD a month, which is exactly how much tapering we have had. The Federal Reserve is throwing sand in our eyes, don't be fooled. They are actively propping up the U.S. bond market, artificially lowering the bond yields below the gold lease rates.

    U.S. debt held by Belgium (Billion USD)

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