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zh<>Antal Fekete Responds To FOFOA's Speculation On Gold Backwardation Manipulation

Submitted by Tyler Durden on 07/27/2010 15:21 -0500

A few days ago FOFOA drew quite a bit of attention with his post "Red Alert: Gold Backwardation", in which the topic of the GOFO rate receives prominent attention (GOFO is basically the difference between a currency lease rate, in this case dollar Libor, and the GLR, or the Gold Lease Rate, as per the LBMA). FOFOA draws several correlation between the GOFO and an implied backwardation, and asks the question: “Is the dollar bidding for gold, or maybe gold is bidding for dollars?” Indeed, while one read of the underlying material does substantiate the presented hypothesis, another is merely that there has been too much turbulence in the currency market, with Libor, not just USD, but especially EUR, surging recently, on very valid liquidity concerns out of Europe. As a result of the massive squeeze first in the dollar and then in euros, a topic much discussed here previously, one could reach a point where the GOFO is in fact negative, merely due to vol in interbank and money market, which in turn is driven by ever faster liquidations in the shadow banking system, another topic much discussed on Zero Hedge. Certainly, when both of these are in flux, it would be expected that GLR would also do some very peculiar things. Either way, FOFOA has conceived an interesting theory, and gold fans will appreciate the thought experiment of gold being in backwardation. We present Professor Antal Fekete's response to FOFOA's analysis. Both are an interesting read. (The FOFOA post can be found here).

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Gold Basis Screwed

http://www.zerohedge.com/article/antal-fekete-responds-fofoas-speculation-gold-backwardation-manipulation