SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

[blazespinnaker]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

I suspect the rise in gold is the prelude to a dollar collapse and the beginning of inflation.

Long gold, oil and uranium.

Right now however I think the best leverage is in oil which is due for a rebound.

I think so too... Canadian OIL equities in fact.

You get a double whammy, not only does the stock rise, but the CAD rises as well (currency with a high correlation to commodities, for obvious reasons)

[Basil]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

I think so too... Canadian OIL equities in fact.

You get a double whammy, not only does the stock rise, but the CAD rises as well (currency with a high correlation to commodities, for obvious reasons)

Any particular Canadian Oil equities you recommend? There has been some discussion of this here in the past, but it was a very long time ago.

[Joy]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

There always seems to be some misunderstanding about Gold Lease Rates (GLR). GLR is Gold's equivalent of Dollar Libor (DL). Both represent termed rates of return on lending Gold or Dollars respectively.

The Gold Forward rate (GOFO) is a swap between Dollars and Gold. And is usually quoted as the difference between DL and GLR.

ie GOFO = DL - GLR quoted for different term lengths.

So with GOFO now negative for one and two month terms, you get paid more lending Gold than lending Dollars. So GLR is higher than DL.

So the old chestnut that Gold doesn't pay a dividend has never been true. You could - if you ever chose to - lend your Gold out at the Lease Rate. And as of this morning you would be making more than the lenders of Dollars.

[jtabeb]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

http://www.usmint.gov/about_the_mint...on=fun_facts13

As far as I can tell, the gold belongs to the usmint which is a part of the department of the us treasury.

Feel free to provide some proof that I'm wrong though.

One would think if the federal reserve owned gold, it would store it at the new york fed alongside all the rest of its gold it's safekeeping, rather than at the US treasury bullion reserve.

The gold is "collateral" securing the US' national debt to the FED.

I'll get you a link.

[krakknisse]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

There always seems to be some misunderstanding about Gold Lease Rates (GLR). GLR is Gold's equivalent of Dollar Libor (DL). Both represent termed rates of return on lending Gold or Dollars respectively.

The Gold Forward rate (GOFO) is a swap between Dollars and Gold. And is usually quoted as the difference between DL and GLR.

ie GOFO = DL - GLR quoted for different term lengths.

So with GOFO now negative for one and two month terms, you get paid more lending Gold than lending Dollars. So GLR is higher than DL.

So the old chestnut that Gold doesn't pay a dividend has never been true. You could - if you ever chose to - lend your Gold out at the Lease Rate. And as of this morning you would be making more than the lenders of Dollars.

This seems to be incorrect.

The GOFO, at least as the LBMA defines is, is the price to borrow gold. It is a lease rate, an "interest rate" if you will. The one- and two month GOFO is now negative. The LIBOR or the DL (dollar lease rate) does not enter into the GOFO (directly). Whereas there is usually a price to pay to rent gold, this is currently not true. They will now pay you to borrow gold.

So basically, you could borrow a kilogram of gold, get cash from the lender, sit on it and do nothing, return it at the end of the lease term, risk free. However, transaction costs probably negate any free money. And I strongly suspect that gold lenders (central banks) will probably only lend to any lendee that is actually looking to sell short.

The "gold lease rate" is the LIBOR minus the GOFO.

This is all explained by the LBMA on their FAQ page:

What is GOFO?
GOFO stands for Gold Forward Offered Rate. These are rates at which contributors are prepared to lend gold on a swap against US dollars. Quotes are made for 1-, 2-, 3-, 6- and 12-month periods.
To show derived gold lease rates, the GOFO means are subtracted from the corresponding values of the LIBOR means.

[Joy]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

Your confusion is very common.

You said: "The GOFO, at least as the LBMA defines is, is the price to borrow gold."

But from the page you referenced we get:

"What is GOFO?

GOFO stands for Gold Forward Offered Rate. These are rates at which contributors are prepared to lend gold on a swap against US dollars. Quotes are made for 1-, 2-, 3-, 6- and 12-month periods."

So GOFO is essentially a swap. It is the rates at which people are willing to lend Gold vs borrowing Dollars. It is the differential between two rates: the term Dollar Libor rate and the term Gold Leasing rate.

Gold leasing rates aren't traded directly but are always derived from the swap.

The implications of all of this is that Gold is getting harder to borrow. Gold 3 month Leasing rates are close to 2.10. 3 month Dollar Libor rates is also close to 2.10.

It is conceivable that if this continues that Gold Futures contracts can go into backwardation. Unbelievable if it happens. :eek:

[blazespinnaker]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

The gold is "collateral" securing the US' national debt to the FED.

I'll get you a link.

No need. You proved my point. If it's collateral then it belongs to the Treasury. Encumbered collateral, for sure, but ownership is pretty clear.

[tombat1913]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

The gold is "collateral" securing the US' national debt to the FED.

What the hell is a guy like yourself doing in the military?

You know too much man!

[blazespinnaker]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

Right now I'm mostly in XIC. However, I am looking into finding more pure commodity plays.

[jtabeb]

Re: SHORT SQUEEZE IN GOLD: Now they WILL pay you to short gold.

What the hell is a guy like yourself doing in the military?

You know too much man!

It was a choice. A lot of my friends went to work in finance(from the military). I honestly don't think that their analysis is as good as mine (but then who thinks other people are better than they are). They were all telling me how I was missing out on "big bucks" on the street. My retort was that I didn't have enough time to play before the bubble was going to pop. So I'm still employed and most of them are not. Go figure.

Bottom line is:

Teaching people how to fly airplanes, pulling 7 Gs and flying formation everyday plus an office with one hell of a view and making $136K/yr to boot, ain't bad. Health care and job security are nice too. I'm working on my masters now because I know I'll have to grow-up and get a real job someday. So hey, if any of you need some fantastic financial prognostication, look me up say around 2011 or so when I'm done.

V/R

JT