GOFO REPORT – Gold backwardation widens, six-month rate also in premium

London 08/08/2013 – The backwardation in gold, which has been present for a month, widened to its widest level since first appearing, according to data published on the London Bullion Market Association (LBMA) website.

Six month gold also dropped into backwardation – it had been in contango until yesterday. The latest figures show one-month gold prices at -0.12116, the previous high was at -0.11167 on July 10.

Two- and three-month gold prices were also negative at -0.1 and -0.0833 respectively. Six-month gold was reading -0.006, with gold for 12-month delivery at 0.1333.

“This is all tying into the whole narrative that has been developing lately,” Standard Chartered’s Dan Smith said. “It is certainly bullish for gold, and it is actually moving into a potential supply crunch, with producers cutting back.”

Spot gold prices were last quoted at $1,290.75/1,291.55 per ounce, down $6.55 on Wednesday’s close.

Negative gold for forward delivery (GOFO) is viewed as bullish for the price in the short term, essentially indicating a shortage of material for immediate delivery.

The GOFO is set by the market-making members of the LBMA: the Bank of Nova Scotia–ScotiaMocatta, Barclays Bank, Deutsche Bank AG, HSBC Bank USA London Branch, Goldman Sachs, JP Morgan Chase Bank, Société Générale and UBS AG.

Every day at 10:30 UK time, these contributors register the rates at which they are prepared to lend or swap gold against US dollars. Quotes are made over one, two, three, six and 12 months.

The highest and lowest quote for each period is discarded and the remaining rates are averaged.

Last month, gold swung into backwardation for the first time since shortly before the collapse of Lehman Brothers in the summer of 2008.

(Editing by Martin Hayes)

Eddie van der Walt

About Eddie van der Walt

London-based, South African-born metals markets reporter, currently focusing on precious metals and the London Metal Exchange. All that glitters must be sold. Twitter: @EvdW