Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
Gold & Silver Prices in
In the same category

Gold Leaps Into Backwardation!

IMG Auteur
Published : February 16th, 2013
339 words - Reading time : 0 - 1 minutes
( 4 votes, 2.5/5 ) , 1 commentary
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
1
comment
Our Newsletter...

Since late January, the February gold contract has been in backwardation. This means that one could make a profit by simultaneously selling a gold bar and buying a February contract. One would still have one's gold plus a little extra. I coined the term "temporary backwardation" (http://monetary-metals.com/temporary-backward...rd-from-2008-3/), to describe this curious and very recent phenomenon. In our "new normal", most gold and silver contracts go into backwardation as they get close to expiry.

When the Feb contract first jumped into backwardation, it was well within the "contract roll" period. The roll is when naked longs sell the expiring contract and buy a contract for a more distant month. This heavy selling of the expiring contract pushes down its price. Since cobasis is Spot minus Future (oversimplified slightly), the cobasis rises purely due to the mechanics of this selling.

But today something more serious occurred. The April contract, which is not yet being "rolled", fell into backwardation. See the chart.


Larger Image

The market is offering a free profit to anyone who will sell a gold bar and buy an April contract. For whatever reason, no one is either able or willing to take the bait. This is proof that the market for physical gold metal is drying up. Speculators in the futures markets may believe that the gold price "should" fall because the central banks say they are not going to competitively devalue their irredeemable paper currencies. Owners of real metal are increasingly reluctant to part with it at the current price.

We don't recommend that anyone ever naked short the monetary metals. Instead, we always advise to use an arbitrage position such as long gold / short silver.

Using the basis theory, we have been bearish on silver this year, against the consensus: target="_blank" http://monetary-metals.com/is-silver-a-goo...rade-right-now/ target="_blank"and http://monetary-metals.com/the-coming-s...ver-correction/.

Using the basis theory on gold today, we would suggest that now is a great time and a great price to buy gold.

And to those who may be shorting gold due to downward momentum, we would say this. Caveat venditor.

<< Previous article
Rate : Average note :2.5 (4 votes)
>> Next article
Keith Weiner is a technology entrepreneur and president of the Gold Standard Institute USA. He was the founder of DiamondWare, a Voice Over Internet Protocol software company, which he sold to Nortel in 2008. He is an Objectivist who has his PhD from the New Austrian School of Economics, with a focus on monetary science. Keith, who currently trades and analyzes precious metals and commodities, advocates a return to a proper gold standard and laissez-faire capitalism. He lives with his wife near Phoenix, Arizona.
Comments closed
  All Favorites Best Rated  
Kieth, the last sentence of your statement: "The market is offering a free profit to anyone who will sell a gold bar and buy an April contract. For whatever reason, no one is either able or willing to take the bait. This is proof that the market for physical gold metal is drying up." threw me ~ for a moment.

I believe that last sentence should read "This is proof that there is no PHYSICAL gold metal to sell into the market." In my opinion, there IS a market for physical gold ~ if physical gold could be found ! !
Rate :   1  0Rating :   1
EmailPermalink
Latest comment posted for this article
Kieth, the last sentence of your statement: "The market is offering a free profit to anyone who will sell a gold bar and buy an April contract. For whatever reason, no one is either able or willing to take the bait. This is proof that the market for phys  Read more
Gypsy - 2/17/2013 at 7:53 PM GMT
Rating :  1  0
Top articles
Latest Comments
Leaked Police Report: There Are 23 Muslim-Controlled “No Go Zones” ...
25 Junkevthorne1
I do not know how anyone could take an article like this seriously. It is garbage of the worst kind. 'Anonymous sources' 'unidentified leaks' - not...
Bitcoin in Perspective: Bill Gates Worth More, Gold 200 Times More
22 JunDavid C.2
Yes Mish, but bitcoin and the wealth and debt burdens of the world are fully backed by electrons which are very light. Unlike that 68 ft glob of m...
Bitcoin in Perspective: Bill Gates Worth More, Gold 200 Times More
23 JunDynoman0
Valuable potential is what's currently offered by digital currencies. It makes absolute sense to have a global digital economy based upon borderles...
Absent Without Leave
21 JunS W.
Bail ins for sure. It was agreed at the G20 in Brisbane. You are not really a share holder. You are an unsecured creditor to the bank a...
Absent Without Leave
19 JunJ.3
Perhaps all the international shenanigans are the smoke and mirrors intended to obfuscate the view of the looming financial catastrophe. When the ...
Gold Price Cuts Post-UK Election Loss, ETF Investors Sell, Nasdaq D...
16 JunSam Maher
"the SPDR Gold Trust (NYSEArca:GLD) – saw its sharpest liquidation since March in the week-ending Thursday, with shareholders cutting the fund's si...
Things To Come
13 Junkevthorne3
If voting for 'parties' actually made a difference they would have not legalised it. Since 1914, it's been the supply of currency that has governed...
Things To Come
12 Jun Roygbiv0
And JHK ruined your life because he then voted for Obamba ? For Jim C.
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS