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Bullish Signal For Gold When GOFO Rate Turned Negative
Posted April 7th, 2014
Los Angeles CA, Apr 7 (Tangible Investments) - by James O’Dell - The price of Gold broke above the $1,300 an ounce level on Friday, after the yellow metal gained $12.94 or 1.00 percent to finish the week higher at $1,302.64 an ounce when data released by the Labor Department showed that key non-farm payrolls increased by just 192,000 jobs in March, while economists' were expecting at least 200,000 new jobs.
After all, even Fed chief Janet Yellen was suggesting that the lull in hiring may have been due to the frigid winter, yet now we see, that may not have been the case. The price of silver added $0.14 or 0.71 percent to end the week at $19.81 an ounce.
"It's a relief rally because markets were expecting a much stronger payrolls number," said a trader based in Sydney. “Reduced anxiety about Federal Reserve tightening and simmering geo-political tensions in the Ukraine should support a further advance for the yellow metal,” said Richard Baker, of the Eureka Miner's Market Report.
The Ukrainian crisis took a turn for the worse during the weekend when pro-Russian protesters in the cities of Donetsk, Luhansk and Kharkiv stormed government buildings, demanding another referendum to join Russia. Some reports were saying the unrest was an attempt to force the release of 15 pro-Russian activists who were arrested earlier in the week after being accused of plotting violent unrest against the country. Ukraine's acting president, Oleksandr Turchynov, called an emergency security meeting in response to the growing violence.
Meanwhile, the one month Gold Forward Offered Rate (GOFO) turned negative last week, and that is bullish for gold. The GOFO rate turns negative when investors are willing to pay interest to borrow gold and they use dollars as collateral. Therefore a negative GOFO rate indicates a higher value is being placed on gold than dollars, and it’s a sign that we have most likely seen the bottom in this latest correction.
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