Negative Gold Forward rates imply tight supply of physical Gold: ETFS
Historically, negative GOFO rates cause rally in gold prices except in 2001. Since July 2013, the gold price has increased by over 13% as a surge in physical buying following the April slump in price have drained liquidity out of the gold forward market.reaching 5.7moz, an 8% year-on-year gain.
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The London Bullion Market Association (LBMA) Gold Forward Interest Rate (GOFO) has turned negative since July 2013 before returning back to positive territory recently, according to ETF Securites Ltd (ETFS).
GOFO is the interest investor has to pay for his gold-collaterised US dollar loans and normally it is positive as an investor has to pay interest on the US dollar loan. But when GOFO turns negative, the investor gets paid for the gold he has mortgaged which in effect means there is a tightness in physical gold supplies.
In such a scenario as in the previous two months, gold prices moved up. Physical market supplies tightened as is evident from 24% fall in Comex gold inventories, China imports from Hong Kong in the first six months of 2013 doubled on a year-on-year basis to 16 Moz. Central bank buying in the first half of 2013 was 8% to 5.7 Moz.
Historically, negative GOFO rates cause rally in gold prices except in 2001.
Since July 2013, the gold price has increased by over 13% as a surge in physical buying following the April slump in price have drained liquidity out of the gold forward market. Imports of gold from China were 150% higher in June compared to thesame period last year, continuing the trend of the previous months. Central bank buying also increased in the six months to June 2013, reaching 5.7moz, an 8% yearon-year gain.
With demand from Asia and the official sector continuing to show strength, and recycling trending down, lack of liquidity in the gold forward market is likely to continue to support the gold price. In the longer term, with mine supply also likely to fall as gold miners struggle with rising costs and lower profitability, supply-side factors are likely to continue to support the gold price, ETFS report added.
Sumber : Google
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