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First of all, what is the GOFO?

GOFO represents Gold Forward Offered Rates; it is published by the London Bullion Market Association (abbreviated as LBMA) at London time 11:00 am on its website. These are rates at which contributors are prepared to lend gold on a swap against US dollars. The contributors are Members of the LBMA who are the Market Making. There are The Bank of Nova Scotia–ScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA London Branch, Goldman Sachs, JP Morgan Chase Bank, Société Générale and UBS AG. The quotation is different vary from period. Generally, the deadline of GOFO includes 1 month, 2 month, 3 month, 6 month and 12-month.

The costs of borrowing gold are calculated in ounces, rather than dollars. Typically, the main lenders of gold are the central banks; whereas, generally the large gold dealers, gold companies and jewelry processing enterprises tend to borrow gold. There are two main factors affected lending rates, one is the demand differences of spot gold and futures gold, the other is the current interest rate of borrowing dollars.

Then, what are the LIBOR and GLR?

LIBOR represents London Interbank Offered Rate, it is the average interest rate used in borrowing from other banks. The Libor and Euribor used as primary benchmark for short term interest rates around the world. Libor is calculated and published by Thomson Reuters who stands for the British Bankers' Association (BBA).

GLR stands for Gold Lease Rate; in fact, it is the derived rate. GLR is defined as: GLR = LIBOR - GOFO.

Let's use example explain the relationship of the three rates. Supposing the current situation is as below:
GOFO: 1%
LIBOR: 6%
GLR = LIBOR - GOFO = 5%
And the gold price: $1200 per oz

Now the transaction is between bank A and bank B. The bank B holds 100 oz of gold, and enters a swap with bank A. Therefore, the bank B receives $120,000, and bank A get 100 oz of gold. As the transaction expires, bank B has to pay $121,200 to redeem its gold. Since bank B invests $120,000 in the market and get the LIBOR rate that the total amount is 127,200. Therefore, bank B gets the net profit is $6,000 that equals the lease rate (GLR) multiply by the gold value at that time. Of course, the lease rate may be negative that means the bank B loss money