GOFO: Negative Gold Forward Offered Rate: What Does it Mean?

Updated by 5 Comments

If you are confused about Negative GOFO (Gold Forward Offered Rates) and what it might mean for future gold prices, Max Keiser’s interview with renowned gold trader Andrew Maguire will help you understand it like an expert. Max and Andrew break down the implications of this unprecedented scenario.

After watching this video, you will not only feel much more confident about your decision to buy and hold physical gold bullion, but perhaps even even feel a need to acquire more. If you are looking to buy gold, check out our guide to buying physical gold bullion, where we break down your options and provide tips for getting the best possible price from quality online gold bullion dealers. Those that expect silver prices to piggyback gold prices and rise to an even greater extent than gold can check out our Guide to Silver Bullion for tips on the best silver to buy.

What is GOFO and What Does it Mean for Gold Investors?

GOFO is explained to us this way by Dave Kranzler on Seeking Alpha that gets into the nitty gritty details::

The Gold Forward Offered Rate (GOFO) is the rate that is used for gold/U.S. dollar swap transactions. That is, if you own gold and you need to borrow dollars, you can use your gold as collateral and pay a much smaller rate of interest to borrow the cash than otherwise. This is a common transaction in London and the GOFO rate is published daily by the LBMA (London Bullion Marketing Association): LBMA GOFO rates.

GOFO is calculated as LIBOR less the Gold Lease Rate (GLR). Typically, GOFO rates are positive, a function of the fact that it typically costs more to borrow dollars than gold. The further out you go on the curve, the higher the rate – just like bonds.

Presently, GOFO rates are negative. This tells us that the Gold Lease Rate LIBOR is higher than LIBOR. In other words, it costs more now to borrow gold than it does to borrow dollars, which essentially eliminates the gold carry trade – one of the primary reasons bullion dealers would sell gold into the market. GOFO has been negative now for 15 days. GOFO rates are rarely negative. In fact, they have only been negative twice since 1999, and both times, GOFO rates going negative preceded a bottom and signaled a future rise in gold prices.

Negative GOFO rates imply that market participants place a greater value on gold now than they place on dollars, despite the fact that dollars can be used to generate yield. Negative GOFO tells us that there is no Gold Carry Trade at the present time.

Why might this be the case? The implication is that those holding gold (which pays no interest) are less willing to lend their gold out (and effectively earn interest on their gold). Those borrowing gold have already sold it, and those they sold it to are now demanding delivery. The borrower does not have the gold to deliver, so they must go out and borrow gold to meet delivery demand. The gold seller will have to acquire physical gold to “repay” the loan, so they become gold borrowers (or ultimately, gold buyers). Potential gold lenders fear that potential gold borrowers may not be able to “repay” the gold because they will not be able to find enough physical gold in the market to to return it.

It all goes back to supply and demand. Gold inventories are tight, and too much borrowed gold has been sold into the market to raise dollars for investment elsewhere. Now, there are more paper claims on gold than there is physical gold to back those claims. Those that bought gold are demanding physical delivery. They want to hold the gold themselves. Those that sold the gold need to acquire it in the market, or borrow it from a current holder, with a promise to pay it back later, with interest, in order to deliver that gold. Those who could potentially lend gold fear they won’t get it back. Thus, the cost to borrow gold rises.

In any event, Andrew and Max in the video above do a good job explaining this situation, and why it should be very bullish for gold prices moving forward.

There has also been significant debate over whether gold is currently in backwardation. Is gold now worth more than future gold? COMEX Futures may not answer this question for you. For a comprehensive discussion on GOFO and whether it means backwardation in the gold market, head over to TF Metals where Andrew Maguire is featured in a guest post. In this piece, Andrew weighs in with his thoughts about this debate within the gold trader community, and discusses why gold is unlike all other commodities, leaving many pure technical traders who attempt to comment on the gold market confused: Andrew Maguire Discusses GOFO and Gold Backwardation at TF Metals

Is our understanding of GOFO above correct, or did we miss something critical and get the analysis wrong? Weigh in with your thoughts, and please correct our assumptions where they need correcting in the comments below.


  1. tyilmaz says:

    If gofo is negative it means gold lease rate is higher than libor.but you mentioned vice versa in 5. Paragraph. If it is wrong please correct me

    • Tyilmaz, thank you for catching that critical error! I indeed did have it backwards in that paragraph. It has been fixed.

  2. GOFO fell 5 times below 0.2 % since the crisis has started and each time gold shot up a short time afterwards. 16 % increase was the lowest, 35 % was the highest increase!
    But for now I see GOFO went even lower, gold got even cheaper!
    It’s also interesting to check the CPI-gold price correlation. Gold seems to have a tighter relation with the CPI.

    • GOFO has now been negative for over a month, which is unprecedented. What could that mean?

      According to GotGoldReport, it’s a “signal to the market that current prices have over sold gold availability and/or signals that some other stress is beginning to show in the gold market clearing structure, both here in the U.S. and in London.”

      Heh.. We like the title of that site. Got Gold?

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