Bullion Dealer Licenses Benchmarks

Tom Burroughes

26 March 2018

Bullion brokerage gold forward rate and silver forward rate, which are produced by US-headquartered Monetary Metals.

The Gold Forward Offered Rate is the swap rate for a gold-to-US dollar exchange. It is not the price to lease gold but rather the price to swap gold for US dollars. Effectively it is the interest rate on a US dollar loan secured against gold. As such, it may be interpreted as the difference between the US dollar rate (Libor) and the gold lease rate. These charts on info.sharpspixey.com are updated daily by Monetary Metals’ data science platform. Monetary Metals has developed a proprietary method of calculating indicative rates with high accuracy, based on public market data. Usually, the Gold Forward Offered Rate is positive, which means that the price of gold for delivery in the future is higher than the spot price, i.e., there is contango in the bullion market. Meanwhile a negative GOFO indicated a shortage of metal liquidity for leasing and tended to precede rallies in the gold price.

“Gold users need GOFO, but the London Bullion Market Association stopped publishing it in January 2015,” Keith Weiner, CEO of Monetary Metals, said.

The licensing agreement is an example of how investor interest in holding precious metals continues to develop. (This publication has examined developments around gold dealing and modern tech here.) Sharps Pixley opened offices in St James’s Street, London, in 2016 and is owned by Germany-based Degussa. (See an article here.)

Monetary Metals compares its gold forward rate to the LBMA data series between 1996 and 2015. Its six-month GOFO has better than 0.99 correlation. (See here for an interview with Weiner about his business.)

Among other recent developments, in November last year, this publication reported that the Royal Mint has launched a digitised gold trading platform using blockchain technology.