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Antal Fekete Responds To FOFOA's Speculation On Gold Backwardation Manipulation
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).
h/t Captain Goodvibes
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Sooner or later it all comes down to ounces buried in your backyard
I like the way you think. Someday, whether it's next year or 20-years, I think you will be happy with your decision.
it helps me sleep at night
It really does help a person sleep. Most of the banks are in a near death state. The financial institutions are living in a make believe world. I guess you can say gold helps you stay well grounded. (pun intended)
And the number of loaded clips.
+7.62
+ 9 mm
...
Actually it pleases me to see fofoa and Fekete get more exposure, the 2 guys who seem to know the most about gold.
45 acp
I have to say I am down to one .40 cal and three 9's. Plus the AR's of course. I am spot on with the 9's so it is better to just go with what best suits you.
Military and police are 9mm and .40 by and large. If TSH, then you would need to try to have something in common calibres.
That lets out some really good rounds such as 10mm or .357 Sig, for example. A decent 9mm carbine would seem to be a must-have. .45ACP is a great round, just not as widespread anymore. I love that cartridge, but must concede that against the type of violence typified by 3rd world nations like Argentina or Brazil, that the "hail of bullets" response that a deep 9mm magazine gives you has a certain, shall we say, "allure" to it.
Yikes, you read my mind with the Argentina or Brazil analogy.
7.62 was mentioned above. 7.62 x 39 is for my AK-47.
500 rounds each.
I had the Beretta 9mm carbine and it was nice being able to use the same mags as the pistol but when I realized that I can only shoot one gun, accurately, at a time it had to be the M1A - they don't shoot back after one hit - which is the primary goal. And if you factor in the range of pistol calibers why wouldn't you want something that is effective at eight football fields instead of one? 9mm when I'm out of 7.62.
One shot. One kill.
12 gauge
+00
+12
Great for up close and personal (pistol grip)!
Guaranteed to ruin their day.
DoChen,
Had you figured for a .45 cal guy. Appearances can be deceiving.
.45 cal too big. I would never practice, make me flinch!
I might be mistaken but Fekete is opening a school called "The new school of Austrian economics"
He changed some shit around because he figures there is liquidity issues in the Misus Austrain school. I lost some respect for the guy when I heard that.
http://www.44mag.com/
http://www.44mag.com/
I worry, probably needlessly, that leaving the mags loaded causes the springs to go slightly flat and possibly causing a jam during those few seconds over the span of your entire life when you need your mags to feed your rounds dependably.
load at 30-40% this way you have a few rounds ready for quick action and the springs still maintain pressure.
This is an old wives tale. Storing your mags loaded does not cause the spring to weaken. It is loading and unloading, or release of energy that weakens the spring. This has been beaten to death on many gun forums.
Exactly. If your springs are going soft at room temperature, they're screwing you on metal quality.
Guy at the store where I bought my AK and my 9 mm Beretta told me that putting 25 rounds into the 30 (capacity) AK clip and 10 rounds into my 14 (Beretta) clip was the way to go for storing ammo ready to shoot. So, I have gotten used to firing 10 shots per magazine with the Beretta and 25 with the AK.
I of course defer to the Colonel on this one, as I am a beginner.
Dead on, fatigue from the cycling (variation of the load on the mag spring) weakens the spring over time. Besides an empty mag will do you no good.
Misean,
I'll give you a +5.56 on that. But might I correct you and say mag.? Unless you're top feeding something of WWII vintage, then I apologize.
Is it just me or is Fekete a little nutty?
Like Fat Bastard's stool sample? No. He's spot on!
In a world gone insane, nutty is the new norm.
Even though FOFOA spells out that the published metrics can and have been gamed, thus the need for just observation of the "temperature" without a thermometer, Mr. Fekete continues to blither about an additional metric. Mr. Fekete wishes to (again) be on the coattails of genius and has nothing to supply of note. This has proven to be the case previously where Mr. Fekete's bills of credit were just another credit (eventual market death) money substitute. After pouring over his writings in that matter and finally figuring out his SOP (big ego small or zero contribution) I stopped following him.
Your reply qualifies you not Fekete. Ignore him to your own perill!
Fekete is pretty bright and I enjoy also one of his associates, Darryl Robert Schoon. Granted each of the two provide an interesting perspective on gold, economics etc, and at times they delve deeper than most care to see.
They are just some of the many authors that realize something is wrong and rationalized a possible solution (gold).
Just read the good Dr's latest.....
http://www.drschoon.com/
Can't argue with the Dr. He has prescribed the right medicine.
Good read thanks!
Yeah and he is opening the "New School of Austrain economics" because he thinks he is smarter then Misus et al.
Fox,
Sometimes I have to read his stuff 2-3 times, he can be intense.
FOFOFA is a beast.
+10
What does that mean? Please clarify. Thanks.
http://www.youtube.com/watch?v=j9OLMK2TOnc
Max Keiser on the Silver manipulation. Calls it the Achilles heel of the whole Ponzi scheme.
jeff nielson at bullion bulls has always said silver is the weak link and would lead the charge. he makes a good argument.
http://www.bullionbullscanada.com/
Funny that these guys are saying that the LBMA is using a lighter shade of grey in their reports then they did before, thus they must be hiding something! Cue the cuckoo birds.
Yes, TPTB are crazy if they think that by making the report harder to read the information will not get out. Actually, desperate is more like it.
You must be someone who always reads the fine print.
gold capitulated today on heavy volume,,,that of course the paper price as one of my dealers got wiped out of physical today......
FOFOA is a beast
makes me wonder if a "gold dealer's" index could be created which interconnects all physical dealers with instantaneous transaction information that confirms that while paper is going one way physical is getting trounced with buy orders when ever the paper market is being pushed down.. even if the data had to be delayed days or weeks it would be interesting to see what the boots on the ground are doing during these periods of manipulated weakness.
Cheers Tyler for finally posting this article on ZH.
By the way,here's Silveraxis thread for that period as mentioned in my earlier post.You'll also find this very interesting.
http://silveraxis.com/todayinsilver/2008/12/28/response-to-professor-fek...
Sumsabitchez, I like my GOLD! I know it'll get me what I need.
well done ZH something is about to go down. i don't know what , but i can smell it.
this site is doing a great service to humanity wether you know it or not.
Both FOFOA and the 'Nutty' professor are really onto something here. Its just that 'little something' thats missing to tie it all to together. Been driving myself squirly trying to figure it out.
Did the IMF help some entity out that was short of gold with this latest swap for dollars? Is it gold chasing dollars or dollars chasing gold? Why has the LBMA closed out any public access to it's statistics? Was the LBMA short gold and needed a back door infusion from the IMF? Or were they the ones shipping their gold to the IMF for protection and settling demand claims in cash? There is a huge demand for physical gold and VERY few sellers, but many buyers waiting to pounce. How serious is the present physical gold bullion shortage? Silver is said to be in even shorter supply for the physical. This situation is becoming coiled tighter than a rattle snake in January! Sooner or later someone is gonna git bit!!
boiow and Out,
Yes, I agree that something big is about to happen.
But, my paranoia needle always runs in the red zone.
...
+++ to the first poster above. It's all about the ounces. True as well for guns & ammo.
Austrians need to ask themselves: Why was gold withdrawn from circulation in the first place?
Hint: It was not removed by governments; it had already been withdrawn from circulation when governments moved to replace it with fiat.
All the gold was purchased by the govt, not stolen
LOL
ze new school of austrian economics first in budapest, then in hong kong
may the force be w u , yanks
i mean even w us, eating french fries in a mcdonalds near you
I must confess I didn't understand a word of this article. However, it's fairly obvious that the fear of European financial disaster has passed, the Euro is rising, and gold has technically been under distribution for a couple months.
I hope it does pull back along with all the precious metals. I've been waiting.
One thing I don't want to hold in quantity for long is US dollars yielding 0%.
Fekete is incredibly difficult to follow. He needs someone to do the explaining for him. He is a mathematician and even wrote a text in advanced linear algebra. At that level, the exercises you do are huge challenges where you have to figure everything out yourself without hints. This how mathematicians assure that only the fittest get to the top ranks. The attitude is that if you can't figure this out on your own, maybe you shouldn't be studying mathematics. Can you sing or dance?
I think his manner of writing is very much influenced by this mathematical training. Most of his articles are written in a high style with classical references. This is the first time I've seen him embrace a certain vulgarity, using words like "screwed" or "Goldman Sucks". Obviously light fare for ZH in terms of wallowing in crass obscenity, but "unfeketeish" all the same. He must be getting bitter in his old age.
Might be time to buy some more ounces....?
Ben Davies on CNBC:
Despite gold's eight percent drop this past month, the commodity is still the world's "currency of first resort," Ben Davies, CEO of Hinde Capital, told CNBC.
http://www.cnbc.com/id/15840232/?video=1552984313&play=1
It's all about the gold basis baby.
Dear Professor Fekete, you rock! Open the mints to lawful, ye mandated coinage!
http://news.goldseek.com/GoldSeek/1280210640.php
COGO, GOFO, COFOGO, LBBR, LIBOR, GOLD SWAPS, CURRENCY SWAPS, FX, BIS, blah, blah, blah..., but peer behind the curtains and you simply have the devil pulling the strings of all his little minions carrying out his Last Great Ponzi Scheme.
Nevertheless, the forensics are fascinating and the insight provided is amazing.
One dealer I use in NM didnt have even 100 oz of silver available today. A large dealer in AZ related that their clients are selling only when they want to make a purchase of an expensive commodity like a car.
Getting closer to harvest time...
Bron Suchecki posted the following here:
When does backwardation matter?
FOFOA started a little excitement with his post on backwardation. Professor Fekete responded and Zero Hedge weighed in as well.I would not be surprised that for many this backwardation thing makes their head hurt and perceive it as all very theoretical and of no practical use. But this is not true and backwardation is a potential profit opportunity for those holding gold. However, it is also being overplayed.
Backwardation is when the future price is less than the cash (spot) price. Consider you are a long term holder of gold expecting to sell it in a couple of years when the price peaks. One day you wake up and note that the price of gold six months into the future is being quoted on COMEX at $1150. You check with your local coin dealer and he is quoting to buy your gold at $1200. What does this “backwardation” mean to you? See below (numbers for purposes of calculation simplicity, not real costs).
You work out that it will cost you $100 to ship your 100oz to the dealer. He will pay you $120,000. You deposit $20,000 of that with your broker as margin (plus extra to cover fluctuations) and buy the $1150 futures contract, plus brokerage fee of $50. You deposit the remaining $100,000 cash in the bank for 6 months at 0.5%. On maturity of the futures contract you stand for delivery and incur $50 brokerage and $100 shipment cost. Your profit on this is $4950, composed of
* Sale of gold: +$120,000
* Purchase of gold: -$115,000
* Interest on cash: +$250
* Brokerage and shipment costs: -$300
Now this is a great deal. At the end of the 6 months you still have physical gold but you have earned additional money while you wait for your eventual sale in a couple of years. Why would you not take up this opportunity?
Well, the deal is saying “Sell us your gold now and (trust us) ... we will have it to sell back to you in the future for less!” You are exchanging your current physical gold for a future claim to gold. You have “counterparty risk”, to COMEX, to the short on the other end of your 6 month futures contract.
Of course, such a wide difference between cash and futures prices does not normally occur, because faster and bigger players see the profit opportunity and get in first. Their action of selling lowers the $1200 cash price and their buying of the 6 month futures increases the $1150 price and thus eventually the gap (and profit) disappears. That is arbitrage.
But if you did see such a big difference in prices, it means the big players aren’t taking up the deal. The cash-futures gap is telling you that people don’t trust COMEX, they don’t think they’ll get their gold back in the future. What backwardation is telling you is that people don’t want to give up their gold, even for a little while. As FOFOA says: “gold stops bidding for dollars”.
This leads to my closing point, which is best summed up by Tom Szabo’s December 2008 comment: “Let’s talk if and when the backwardation is large enough that the arbitrage was there and yet still nobody chose to go after it. That would be truly something!”
For example, if the cash price was $1200 and 6 months futures $1199.25, in my simplistic (and unrealistic from a cost point of view) example, that would mean a profit of $25. That is technically backwardation and technically a profitable one. But could you (or the big players) be bothered with all the work involved in selling gold, buying futures and then taking delivery, all for $0.25 per ounce profit?
Therefore, the only backwardation that matters to me is backwardation that:
a) means reasonable profit and
b) no one is willing to take that profit (that is, it is persistent).
Any other backwardation is just noise and has no “information value” by itself.
If this topic interests you, the following two services specialise in tracking the gap between cash and futures (known as the “basis”):
The Metal Augmentor (Tom Szabo)
Gold Basis Service London (Sandeep Jaitly)
These services look at the bigger picture and don't get distracted by instances of technical backwardation. They look at the trend in the basis, trying to identify in advance when significant and persistent backwardation will occur.
To which FOFOA replied here:
Hello Bron,
Thanks for your fine post continuing the conversation. I like it a lot! It adds great clarity to a murky subject.
But what if physical gold isn't even changing hands on the "gold futures market"? How would this affect the basis? I know, it's a big "WHAT IF?" Does the Perth Mint use the COMEX for physical purchases? How about sales? Does the US Mint? Where did the Mint say it gets its blanks? So who is using the COMEX to buy physical gold? Better yet, who is using COMEX to SELL their physical gold... to bid for dollars with their gold?
The COMEX is where the basis comes from, isn't it? What do I know? I'm just a conceptual thinker and a fundamental analyst-blogger. I'm not a trader or a technician.
As Trader Dan said today, "today’s markets have changed dramatically from those that I cut my teeth on more than 2 decades ago now. They have become almost totally dominated by technicians. Any trader looking to profit therefore must respect the technicals in a market."
Are these "technicians" following ANOTHER'S advice and hoarding physical gold as a lifelong wealth? Or are they doing what FOA warned against and trading paper gold for a paper dollar profit?
"Today they hide behind a computer and trade the screen. Very few of them have what I would consider a working knowledge of the fundamentals behind the markets they ply their craft in. They do not finesse trades but dump entire positions in huge blocks or enter markets in huge blocks."
If they are hiding behind a computer are they taking delivery? Are they providing physical gold from their computers for delivery demands from... I don't know... anyone buying physical through COMEX? Is the basis even alive?
"Today, they really do not care who knows what they are doing because they know that once the computer enters their orders, nearly all the rest of the computers of the fund world will do the same thing. The big “skill” set in trading today is who can get in or get out FIRST. Do it in large enough size, and you are guaranteed that the rest of the crowd will follow your lead without asking questions."
This doesn't sound like gathering physical gold as a lifelong holding of wealth to me.
"When I first began using this data (many years ago), it was easier to gauge an overbought or overextended market because we did not have the huge sloshing ocean of liquidity crashing into and out of our markets back then. That has all changed."
What did you think about the comment from ANOTHER that I posted above about the real big PHYSICAL gold trade going through the LBMA, not the COMEX? Does it sound accurate to you 12 years later?
Date: Sat Feb 14 1998 19:10
ANOTHER (THOUGHTS!) ID#60253:
Look to LBMA, for currency looking for gold! Compare the Comex average open interest with its average daily trading volume. Now use average daily trading volume at LBMA and convert to open interest in London, using comex ratio. Here you will find "real currency" in "paid for" gold derivatives ( not futures ) ! This money is now looking to convert to physical! It is caught in this paper with no way out!
More Trader Dan: "Those who purchase the actual metal in bullion form can simply take the gift provided to them when prices get nailed and add to their holdings. After all, you have no margin clerk involved here but are diversifying your wealth and buying a form of insurance against what the politicians and monetary masters have done to our country and our currency."
Bron, I would like to know who is trading physical on the COMEX. Do you know? How do we know that there is anyphysical gold changing hands on the Comex? Do we just trust their "transparency"?
You say that actionable backwardation "is telling you that people don’t trust COMEX, they don’t think they’ll get their gold back in the future. What backwardation is telling you is that people don’t want to give up their gold, even for a little while."
What I want to know is who is actually giving up physical - in size - to the COMEX today? To be used as "registered" gold and delivered without a fuss? Or to be lent to the bullion banks at a loss? This physical gold is the basis of the gold basis, isn't it?
And what if the basis IS screwed? What "information value" we can take from this revelation? What actionable message can we deduce?
Sincerely,
FOFOA
.
In the interest of clarifying negative bullion lease rates, an article posted at the NY Fed some time ago explained the necessity of negative interest rates and how they came about in swap arrangements due to 'failures to deliver.' Note that failures to deliver here are used in context with 10-year gubmint bonds. Most gold that is swapped is central bank gold.
http://www.ny.frb.org/research/current_issues/ci10-5/ci10-5.html