Gold Leaps Into Backwardation!

Monetary Metals's picture


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”, 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.


This is a chart of the cobases for the February and April 2013 gold contracts.

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 posting two videos (here and here).


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.

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Phoenix_Rising's picture

You literally don't know whether to laugh or cry.

The only demographic they have left is the "low info voter" because everybody else has been siphoned off.

I still laugh my ass off at this video.....

fijisailor's picture

Wow.  Look at the $50 difference in premiums between wire transfer price and credit card price for AGEs at gainesville coins.

Room 101's picture

You do realize that merchants pay a fee when you use a credit card?  The premium you're talking about at Gainesville is 2.9% by my math, which is probably about what they're paying MC/Visa for the privilege of taking your plastic.  Plus, they don't get the money immediately and there is a percentage (probably small in this case) of buyers who will challenge the charge to their credit card.  That costs merchants a mint. 

This is why you should consider paying small merchants in FRNs rather than plastic; they get raped by the credit card merchant fees.  Gainesville is simply making that merchant's fee transparent. 


fijisailor's picture

If you have been watching gainsville coins prices over the months and  years you will know that this difference is SIGNIFICANTLY higher than it used to be and I mean at least five times more than previously.

GMadScientist's picture

"In God We Trust" (all others pay cash)

mt paul's picture

every time i aproach the old lady

for a little backwardation ....

she slaps me

GMadScientist's picture

Squeaky shoes; try Moccasins.


tony bonn's picture

temporary backwardation my ass.....i have been stating for 3 long years that gold is in severe and permanent backwardation - contrary to the views of the good folks at the gold standard institute - because the paper price of gold is meaningless....large gold transactions are stopped dead in their tracks by behind the scenes criminal buyouts of 10-25% to NOT take the gold - taking it being a threat to your life....

the tungsten barrons of the clinton years - and yes that includes slick willie - gave evidence to backwardation....backwardation must be considered in a broader context than merely the paper price published by lbma or comex....the western world in slowly imploding....mostly by design, but a nuclear reaction out of control takes on a life of its own....

thank you rockefeller axis of evil and bush crime syndicate

AUD's picture

behind the scenes criminal buyouts of 10-25% to NOT take the gold - taking it being a threat to your life....

I've read that the end of John Law & the Mississippi bubble, was when it became known that redemption of the obligations of the Bank Royale in specie was at the displeasure of the Duc d'Orleans.

And anyway, backwardation as the "good folks at the gold standard institute" view it is when the $ loses its bid in gold. So unless you have a different version of backwardation, there has been no permanent backwardation in 3 long years, & still isn't.

StychoKiller's picture

No backwardation huh?  Then why not sell some Au and buy the April futures?

Look, there's some eeezy munny, just bend over and pick it up...

AUD's picture

Here's something interesting Keith, if you happen to read these comments. From Darryl Schoon. I know Jaitly's basis observations are essentially the same as yours. Take note especially of the first sentence in the second paragraph. I've bolded it for good measure;

Sandeep Jaitly's observations about gold and silver have been remarkably consistent over the past year. Demand for both gold and silver have been constant while supplies of both metals have been pressured leading to indications that an upswing movement in prices can be expected and the accumulation of both metals is encouraged.

In the past year, however, gold and silver have not performed in accordance with such expectations. I believe this temporary anomaly is attributable to two factors: (1) the increasing determination of Western central and bullion banks to prevent another almost-vertical price movement in gold as happened in July/August of 2011 when gold rose 27% in only 60 days; and (2) the current Chinese strategy to purchase gold at the lowest price points possible.

FWIW, I'll wager Schoon's factors are bullshit, like a lot of what he says.

FreeMktFisherMN's picture

as I said on another post, gold preserves purchasing power at a minimum, and usually enhances it (prices going down priced in terms of real money if productivity increases). Today crude sold off big time, too. Not that they can't move inversely, but today was a microcosm of how gold preserves purchasing power. Gold has been going down, but so has corn, coffee, and some other major commodities. Obviously they each have their own supply/demand idiosyncrasies, but gold it takes to buy a unit of them stays pretty stable or has its purchasing power go up. 

Crude down 2% gold down 2% today. Can still buy same # of gallons of gas with same gold coin.

Downtoolong's picture

Most often the explanation is a distortion in the prompt month near expiry. It’s probably just another bullshit short squeeze involving a handful of players which causes the paper market to diverge from the true market. Just one more reason I avoid paper markets for anything but short term trading.

If you buy physical gold you can hold it forever without the need to roll it (sell and repurchase it) every month. Practically speaking, the cost of holding and storing gold is minimal compared to its price. So, if the goal of paper market makers is to mimic physical gold ownership, why doesn’t some genius banker develop a paper gold contract that is perpetual and doesn’t need to be rolled forward every month? The answer is that you would first have to search the entire universe to find a genius banker, and that banker would soon be fired for eliminating every other banker’s opportunity to rip off investors in monthly gold rolls.

Just buy the physical and join the lobby to liberate real gold prices from phony paper gold prices.  

AUD's picture

why doesn’t some genius banker develop a paper gold contract that is perpetual and doesn’t need to be rolled forward every month?

They have. It's called the $, or whatever the obligation of your own central bank is called.

Tombstone's picture

Long BennyBucks, at least they burn well enough to heat my home.  Gold?  Better to stockpile it on Mars where the central planners can't steal it.

mt paul's picture

long silver

fork lift long ..


for awile was getting fork lift adds

in the zero hedge add space ..






jonjon831983's picture

Common n back up into my garage baby

Kina's picture

So the more USD they print the higher the purchasing power and this is why the price of gold/silver is going down.


Or because the USD is becoming more worthless every minute they can treat it like confettie thus to naked short sell gold and silver is nothing. Just print what you need to slam down gold and silver...its only confetti after all.


That the TPTB use so much time effort and resources over so long to continually slam gold and silver only confirms that gold and silver are the means of their death.

If they actually had to deliver the volume of gold they nakes short sell how many tens of thousands of dollars on ounce would it become.

Meanwhile behind the scenes China is buying gold at the cheap sub $5k/ounce price and lauging as the West sells the farm to protect their bankster mates and masters.

f16hoser's picture

Nicely said K. I couldn't agree more. Keep stacking. Pitty those who only hold paper.

SamAdams's picture

Thankfully, the spirtual of the past made idols of a gold, a non-tarnishing and visually striking metal.  This element was difficult to extract from the earth, and soon became a measure of labor.  Deceivers of modern day claim gold is not money, that your labor should be rewarded with paper and ink.  Meanwhile, the age of awakening draws patriots of new who embrace an ideology that is fundamental and constant.

Buy gold, don't be discouraged by extended dips.  Weimar is coming, the reserve status is falling.  The Juice and Romans never perfected alchemy, just like they never perfected God.  God is not to be perfected by man, god is life, god is energy.  The soul is mass conciousness and intelligence.  The soul manifests as an influence of that nook of the universe.  Every soul comes complete with the spirit of Satan, a natural, animalistic tendency toward self-preservation at the brutal expense of others.  It is part of all souls BIOS.  Your Bible is mostly accurate, yet spun, and not necessarily happening in times claimed.  Faith or not, does not matter.  You could read a million texts, but the answers are found within.

Herdee's picture

Nothing is fixed in Europe or Japan or the U.S.It's pure "kicking the can down the road".Governments and Central Banks are stalling the bad debt wash-out that's needed to cleanse the system.All the major players talk about it,especially Jim Rogers.Look at Japan,it doesn't work.Bass says that just a small increase in interest rates will destroy the Japanese.That's very real and clear.Then we get to "the cat that's out of the bag" or "the big secret",which is this:Nobody would ever take delivery of 5% of the Gold Market to trigger a crisis!?Or would they?How many major players would that take?The answer is not many.And here's the catch,money travels around the globe 24 hours a day.Only fools think that New York and Chicago control it now.They don't.So,who's collecting?Russia,China and India to mention a few and indications are that their smart peoples and Central Banks accumulate on the way down.As for the equity situation,it's obviously overbought and nobody knows how big of a correction it could be shortly but the sentiment shows that everyone knows it's overdue.Just ask Apple.It'll hit 150 eventually.

Phoenix_Rising's picture

First post and have been lurking here since day one. To say that this site has been an education is an understatement. You can learn as much from the comments as the articles themselves.

As far as physical Gold and Silver, at least from a relatively average investor, I look at PM's as "wealth preservation" only.

What other financial instrument could you possibly place your money with any piece of mind in this insane environment? With second amendment issues and Obamacare about to be implemented I honestly think this country is about to implode. I think it's getting late.

You guys are awesome.

vamoose1's picture

  very  well  put       great  post   i  think  its   getting  late  too        the  heinous  ones     seem  unstable     wobbly      desperate  even....   its  hard  to   specify        a   vibe     running  on   fumes  

AllWorkedUp's picture

"Wealth preservation only". Sounds about right. Seems like it ought to be making me rich for all the aggravation in the last nine years. Bought at $450 and $8 and I swear to God it feels like I'm losing money. Probably because 90% of the time in the corrupt U.S. markets it is going down.

 What really ruins you is thinking gold stocks will go up with the metal. If you're new and want to invest, buy physical metal only, never buy a gold stock, they will destroy your wealth. Worse than tech stocks in 2000 - way worse. A continual nightmare.

steveo77's picture

GDX is near a bottom, consider NEM now.   seriously

Jungle Jim's picture

o/`In the year twenty-five-teeeenn

If PMs will be worth something, they should be by theeeenn ...

In the year twenty-five-twenty-five

If man is still alive,

If woman can survive, they may fiiind ... o/`

That PMs will finally be worth even as much as what a lot of us paid for them in 2011-2012. And I'm talking physical, not paper.

Yeah. Someday. Finally. Eventually. Ultimately. Between now and forever, or the twelfth of never?

batushka's picture

I bought at $288 back before 2000.  Junk silver too.  Sold in 2005 when needed to get into something else.   Even though the sky is falling (again), it is hard for me to buy at the prices today having purchased at those past prices. 

steveo77's picture

Wake up, the rape of currency is in process

Imminent Crucible's picture

See, there's your problem: You're All Worked Up. You're focusing on the paper raids and the smackdowns and the Gensler vs. Chilton theater. What you should be doing is just getting on with life and doing what you always wanted to do.  Here's how to do that without chewing your nails to the quick:

Print out the 10 year charts for gold and silver. Tape them to the wall. Go to the other side of the room and look at them. See if there is a discernible trend. Decide if you're on the right side of it.

Then stop listening to the trolls and the bilge from CNBC and the paper-mongers. There was a time when the head of JPM said "Gold is money, and nothing else."

It's coming back around again.

spine001's picture


I will guarantee to you that there will be NO implotion, just a slow degradation of the value of the dollar that will slowly accelerate. It'll take another 10 to 20 years but a gallon of gas will be 40 dollars and everybody will think that that is normal. They will  make it slow to avoid chaos and social crisis. There is a critical speed at which you can devaluate and nothing happens people just adapt if you don't believe me just look at our history of inflation in the USA.

Gold/Silver and PM are a good way to forget about the crazyness and keep your money in something that at least will not loose value in real terms, although the conversion to gallons of milk, lets say, will change wildly depending on how much fear there is at the time on the currency/financial system, wars, etc. The only alternative to PM is "Art" or other value preservation pieces. But again, don't plan for chaos or an implosion or civil war... That will not happen, too many checks and balances along the way. Plan for incresed control of the state, increase loss of privacy down to zero. Of course if you can control a cash flow of an essential service, you will be able to preserve your capital, otherwise you will be screwed, period. This is not an opinion, but just mathematics. They know it and they are only trying to soften the blow. The secret is in the derivative business, it got completely out of control and since every major bank is insured with every other major bank and the states are behind those major banks, if on falls nothing can stop the domino effect, except the states taken on the debt. Since the states are already bankrupts (printing to survive with a trillion+ of deficit in the case of the USA), they will keep the majors alive whatever it takes (Bank of America, Citigroup, etc.). The more they look under the hood the more they (FEDS) realize that they have NO alternative to printing (or the correct political word "monetize) their way out of the mess. What this means is that capital will be liquidated, NO WAY OUT of that. Today you are seeing the stock market reflect this sad reality, they are buying into it as a safety valve to hyperinflation. But it won't work, since there is way too much capital for taht, the result will be similar to the outcome of "agency costs" when there is excesive cash flow (a prime example is GM dilapidating several times the amount it'd have taken to buy both Toyota and Honda in wastefull R&D), you can look at firm theory to look at that. The S&P 500 companies can't possible absorb in a smart way the amount of capital that exists in paper only. Dilution is the only possible answer, the trick for success is to do it slowly enough without triggering major social unrest. Although the think tanks know that there will be some unrest, that is why you have seen the police departments arming themselves and training for mob control, reduced civil liberties, abuses of the current ones, etc. etc.

Hope this helps people understand what is coming for real,

Until next time,


matrix2012's picture

Cool explanation about the implosion etc, Engineer!   It aptly narrates a 'slowly boiled frog' situation.


Sukumvir's picture

I accept your scenario only in so far as "They" (as you call them), remain in full control of the high order political game. 

In a situation in which "control" might be wrestled out of their hands, the steps towards executing the plan you lay out are just as good as the clauses contained in the best thought out unilateral Memorandum of Intent. 

I write out of Asia-Pacific and I am baffled to see how politicians around here are making the very same policy mistakes that the european crowd made back in the early part of the century. The secular appreciation in APEC currencies (+capital inflows) is being endorsed locally as the result of stronger economic activity and capital inflows chasing exposure to that.

Nothing further from the truth. APEC Governments are letting currencies appreciate to save themselves basis points of debt servicing costs as for the first time ever (except Phillippines) they are issuing T-Bill, T-Bonds to support their expansionay fiscal policies. Cap Inflows are chasing APEC relatively healthier fiscal outlook.....but in four years we could be in basket case territory.

During the years of APEC Current Account Surpluses, currencies were kept in check, yet! now as Trade numbers dwindle, countries find virtue in currency appreciation...something they should have done long ago to save themselves all the US$ inflation they have absorbed over the past 5 years and the resulting decimation of an incipient consumer base that was hardly reliant on personal credit back then.

My point is... every country/trade area, in every corner of the globe is being pushed into "basket case territory"...and the lousy choices taken by those countries that have seemingly enjoyed some degree of policy freedom are of a political nature... they have nothing to do with sound economics... it's about paying lip service to preserving the "fiat" status quo and going around it the wrong way...  via simpleton policy anphetamines.

The music keeps playing and we might be deluded into thinking that the game could go on forever because the music keeps playing... but in reality...after a closer look...every six months there are fewer chairs around.

If this global demolition is not a political process rather than a purely economic one...I don't know what constitutes politics anymore.


AllWorkedUp's picture

" and keep your money in something that at least will not loose value in real terms,"

and that's about it - preserving purchasing power. If you expect to get rich forget about it. Maybe if the dollar loses its reserve status there'll be a brief period when gold will make you rich - but not for long. They'll either attempt to confiscate or tax the living shit out of it. Forget Wiemar, one gold coin for a hotel. Not gonna happen.

Imminent Crucible's picture

Forget Weimar, a gold coin for a hotel. Not gonna happen

Who knows the future? Let's say you're right; still, even recent history is loaded with examples of what happens when currencies collapse. In 2001, Argentina collapsed theirs and the ensuing disorder caused people to make unthinkable choices. Fernando Aguirre told of an uncle who was offered a nice apartment in downtown B.A. for his economy car. The uncle refused the offer, thinking that transportation was more important than a fancy apartment whose value was collapsing. Ten years later, the car was in the junk yard and the apartment sold for half a million dollars U.S.

I can imagine a dollar collapse scenario where a guy who owns a hotel with no customers and an unpaid tax bill decides that a Gold Eagle is worth more than nothing at all, which he is about to have. You just never know, do you?

caShOnlY's picture

I will guarantee to you that there will be NO implotion, just a slow degradation of the value of the dollar that will slowly accelerate

....NOTE TO YOU:   see dollar value since 1913 ... 100 years long enough?

Now we enter the "fast phase" this is the financial "event horizon" of FIAT currency.  Nice write up, smoke another bong and write to me about "green energy".  


AllWorkedUp's picture

he's talking about an overnight devaluation. If they string this out over another 10-20 years you're wealth in gold will barely increase.


StychoKiller's picture

Tell it to the ordinary folks in Venezuela -- next up, Argentina (yet again!)

caShOnlY's picture

have you paid attention to the gold buying of China? Russia?  Our money printing of the last 4 years?   This thing won't last another 5 years let alone 10 or 20.  We are in a hard recession right now, and that is within the recession that started in 2007 and it will become a depression.  Japan is showing what the future holds when exports wane.  DONE.

MillionDollarBoner_'s picture

All this will end when China issues its promised 100% Gold Backed Renminbi.

This will be a political decision as, when the hammer falls, the USD will "vaporise". Along with China's $1 trillion in accumulated USD reserves.

China needs to accumulate as much physical gold as it can in the interim, in order to convincingly back the new currency. Allowing gold prices to rise now would foil this. So there is a deal: JPM and HSBC manage the gold price suppression to allow China to accumulate; the quid pro quo is that China does not dump $1 trillion in accumulated USD reserves straight into the market.

Symbiosis , my friends.

caShOnlY's picture

All this will end when China issues its promised 100% Gold Backed Renminbi.

amen to that!!  

I want to be present when they start vacuuming credit cards out of Americans wallets and purses and they tell them "you want it? work and save for it!"

FIAT you get for free, gold you do not!!

Oh how I long for the "good ol' days"

Symbiosis ??   or is the U.S. standing down to China?:

5 U.S. Carriers home, in the same port, for re-fueling?


holgerdanske's picture

That is only part of the story. Your wealth in an account is vulnerable to increasingly desperate measures from the elite and the banking system that does their bidding.
Modern money is no longer money. It is conditional wealth in that you will increasingly have to prove that it is fit for use, registered, taxed and declared. It is increasingly only wealth if you are "one of us"!
Further it will be taxed on interest, wealth, inheritance, donation.
It further can become totally a figment of your imagination in case of monetary emergencies, change of currency, devaluation, confiscation or any state sponsored intervention or disruption.
But worst of all, it will sink in value as the governments all over the world uncontrolled create more of the same without any borders set by man or nature. You are a shareholder in a company, that continually issues new shares to preferred clients (which does not include you, sorry!), without you being compensated in any way. On the contrary, you will be increasingly taxed on the inflation created "wealth" gain, interest.
I don't have to tell you that this is also a screw up?.

So whichever way you play this monopoly game, you go to jail.

So why play?

All of that, gold is not.

Melin's picture

+1 . .  .prompted me to make a long-overdue donation. 


WhiteNight123129's picture

Come on, there is no hyperinflation and the masses have not figured out that sticky inflation is coming.


In two years we have stagflation, the sheeple buy like mad  in a rage. You sell.


e-recep's picture

what have you been smoking? in two years the sheeple wont have a dime to stuff their faces. they can see a shiny stack only in their dreams.