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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EscapeKey's picture

I think, if you were to post on reddit, you'd find a more receiptable audience for your bullshit.

espirit's picture

Amen Bro, I up arrowed you.

Oquities's picture

this indication of backwardation is an aggravation of market maladaptation, causing trepidation in the population.

Poor Grogman's picture

consolidation accumulation, celebration...

tenpanhandle's picture

 obamatization proclamation masturbation civilization

mogul rider's picture

I never cease to admire the goldbugs.


You can have your fucking heads handed to you, you can have king world news and every other pump and dump site talk their book and brainwash you to zombie status and still have that guns, gold, and bitches attitude.

Good on ya....


I guess

Imminent Crucible's picture

You paper bugs never cease to amaze me. Century after century of failed paper currencies (about 3800 to date), endless inflation and debasement, countless sovereign defaults (Argentina is heading into #8 right now), Ponzi after Paulson after Corzine, and yet you still think somehow this time is different, Bernanke really knows what he's doing and bond yields can fall forever.

Give us a call when the Klonopin wears off.

klockwerks's picture

And what harm can befall you if you have guns, food, ammo and a little stash of silver and or gold. Plan for the worst and hope for the best has always worked well for my 68 years. Has always worked better and been safer then giving my money to some clown and hope after he takes his split I can make a few bucks. No thanks as I don't know anyone who I trust that much

spine001's picture

Your problem is ignorance of history, read history of money since the 1600s up to today at the least, and then I hope that you don't become a gold bug, I am a realist and have to conced to the gold  bugs that when you own solid gold, at the least you know what you own and its value doesn't change one ounce of gold remains the same ounce day after day, sadly YOU can't say that about any other means of holding value, and specially not about fiat money...

caShOnlY's picture

You can have your fucking heads handed to you, you can have king world news and every other pump and dump site talk their book and brainwash you to zombie status and still have that guns, gold, and bitches attitude.

..... or you can have Obama as your own personal jesus.

Al Huxley's picture

You probably haven't noticed, since CNBC doesn't generally point it out, but the POG's up quite a bit in the past 12 years.  Been a lot better place to preserve savings than treasuries, cash or most stocks.

espirit's picture

Don't waste it on a troll who sees the glass as half empty.

Buying opportunity!

exartizo's picture

"he who laughs last laughs longest."

tenpanhandle's picture

he who laugh last means he's still alive.

Banjo's picture

Having my head handed to me?

I've been buying since 2008 and gold has been going down for the past four years all the way from $900 to todays DOWN price of $1600.

The mainstream media BEAT the drum whenever gold ticks down and mostly silent when it goes up.

I've picked up another five ounces and still have dry gunpowder in case FOFOAs gold puke theory comes true may as well pick up another 15-20 cheap if the physical is avialable.

My target is 100oz gold and have thousands of silver ounces. Luckily I have no plan to HFT these physical holdings and Im happy to sit on them for decades.

The gold I accumulate as well as friends and associates I know, is only leaving my hands when it's value relative to other things is much higher this could happen in either a deflationary environment or inflation.

I would strongly suggest shorting gold if you think the global recovery is strong, self sustaining and America will by 2020 be exporting more oil than Saudi Arabia.

Now where is my popcorn. GAME ON!! GOLD and SILVER BITCHEZ!!



BigDuke6's picture

100 ounces and you've only been buying since 2008!

thats over 3KG's...

i like your style but you'll need to be buying carefully.. you can probably see the buying times by now

i do nothing for many months and then go big.

trust yourself is all i'd say, i dont think its too difficult to tell the buying opportunities , my bowels go funny.  and although i can feel a shit coming on its not just yet.



Phoenix_Rising's picture

I actually believe the mainstream media is the biggest problem of all, bigger problem than politics and Wall st. combined.

We live in a surreal Matrix of sorts. The Obama administration, liberal media and liberal Hollywood are a cult. The media lays out like a Hollywood set, almost like they're trying to create this parallel universe that doesn't exist to subvert the reality that everything's run it's obvious conclusion. Everything ends, it's a universal law, and this whole thing is over. Greed has taken us to our conclusion.

If you have any critical thinking skills at all you will be at odds with those that blindly follow the narrative.

They can vilify the Goldbugs, preppers, constitutionalists, patriots, conservatives, etc., etc. all they want.

I am not buying what they're selling.

vamoose1's picture

  nor  am  i          this   whole   thing  is  over       yeah    just   fumes  now  


    syria     egypt    mena     central   africa   starving  iran   iraq    greek  youth  unemployment   kissing   62   percent  thats    cute....  ditto   spain   they  might  be    hungry  in   spring   ya   figure  spain  and  italy  and  portugal   crooked   shambles   the  queen  in  the   bank of   enland   gold   vaults    wtf   amid   a   triple dip    france   everybody  with  half  a   brain   leaving    germany   cratering   with   no customers       japan    kindly  be   serious   and  the  big   dawg  pointing   his   finger

    these  things  end  in   war

disabledvet's picture

somebody is buying...even if it's not you. the Roberts family have done "beyond belief well" probably the largest media empire in human history actually. "something to think about" as you chew on that goldbug.

Phoenix_Rising's picture

I hear exactly what your saying....

I think the one and only "Black swan" is going to be second amendment issues.

Not only are the gun-nuts going to refuse gun confiscation, most gun-nuts have a pretty strong dislike for Obama, which complicates the whole issue.

I say it becomes an out of control issue....soon.

We all seen the damage that "one guy" did.

Melin's picture

sayeth he without a stash. 

riphowardkatz's picture

I always get a laugh at people who  say "talking their book"  it seems like self-invalidating accusation.  By bashing gold are you not talking your book? 

EscapeKey's picture

No no, it's just you NOT understanding - trillion dollar deficits, bankrupt nations, and a continuously mounting global debt crisis is entirely sustainable.

Vooter's picture

But we're NOT having our heads handed to us, because we don't measure our physical holdings in dollars, or in any other currency. We measure them in ounces...

shovelhead's picture


JPM does not determine the worth of my metals.

I do. And I ain't selling because my interest is their value in the future.

kaiserhoff's picture


This is proof that the market for physical gold metal is drying up. 

Nice analysis, but wrong conclusion.  This is proof that no sentient being wants to give up physical for a lousy paper "contract."



mogul rider's picture

how about this?

long cash = short everything breathing


I like that pair

exartizo's picture

you must be a scumbag JPM trader.

GOSPLAN HERO's picture

Ebay has lots of silver coins ... once in a while you win a nice coin with a low bid.

tenpanhandle's picture

The premiums on ebay's silver coin, especially after shipping factored in, have been cost prohibitive for about two years now.  Searching for a cheap silver coin on ebay is akin to searching bank rolled coins for the odd silver one.  Ebay is where people go (usually) to buy a small amount of silver and are willing to pay a high premium as their purchase is so small that the total amount of premium is small and palatable.

I have stopped looking at silver on ebay for about 1.5 years, because of my above observations, but don't see any reason to expect a change.  Will take a look-see later today to see if I'm missing anything.

Stuck on Zero's picture

I agree TenPan.  I used to get nice stuff on eBay for good prices.  The PMs and collectible are just too high.  The collectible gold and silver is nuts.  Coin stores are pretty good but inconvenient.


BigDuke6's picture

i was thinking about ebay today...

you wouldn't believe 10 years ago - you'd sometimes get a genuine coin for half spot but thats when gold was about $300 an ounce.

i used to look at ebay during big sports events and the ending auctions would be quiet with no last minute bids - may work for you guys during the superbowl.

i'd say i've not bought seriously on ebay for over 4 years....

the word is out and the prices ridiculous - fakes about - i'd sell there though if ever that time comes.

and it must.

the cannon fodder here talk about endless stacking... what are you a rothschild? -

i'll sell for exchange of prime real estate - that should always be the plan.

FreeMktFisherMN's picture

I buy one of those Littleton showpak country silver coins once in a while, as they are rare and no chance of a fake anyway as they are in the showpak. I have Australian Kook and Austrian Kreuzer, some African ones, Mongolian, Mexican libertad. Sort of makes stacking fun, as I have a separate stack of these showpak coins along with my ASEs and maples. And getting the RCM t-wolves is tough from provident and apmex, so you have to go on ebay sometimes. I only buy off of people who have trustworthy seller reps. and who are dealers. For some numis the price is actually comparable to the apmex/provident/gainesville and shipping doesn't take forever as it can be with the online retailers. I still like Provident a lot though. They sell survival stuff, too. Axes, knives, grab n go food kits, packs, etc. Awesome!

CDNX fan's picture

Backwardation is NEVER "bullish"; it is a sign of an impending waterfall the Sprott Funds implode next week! Redemptions everywhere! Then they will have seven "Sprott Roundtable" events a week to try and stem the redemptons as silver goes into a Kamikaze dive from 12,000 feet. Jim Blanchard will be accusing everyone of a conspiracy and the GATA crew will be on respirators. Blue-chip common stocks are the #1 asset class again. BTFD people! 

(How's my sarcasm so far?)

spine001's picture

Darn it CDNX fan, you got me here, I was getting happier and happier that I was going to be able to buy Gold and Silver at really cheap prices, you got me dreaming of Gold falling bellow 1000, that would be a great buying opportunity and I woudn't even feel sorry for the fools who sold at that price, but it was only sarcasm.... hahaha...

Until next time,


tenpanhandle's picture

You had me scared for a moment there; scared that I was going to have to down arrow you.

strannick's picture

Weiner's silver analysis (gold-silver ratio, silver basis) is bogus because;

he doesnt take into account the absurdly manipulated silver market via COMEX all time high shorts by concentrated bullion banks like JPM, and the suppression of silver via SLV shorting (how again do you short an allocated silver ETF??)

StychoKiller's picture

GLD,SLV != Gold,Silver

Are you really that dense?

holgerdanske's picture

" This is proof that the market for physical gold metal is drying up."

No, I'm afraid, it is not proof that the market is drying up, as you describe it. It is proof that the SUPPLY of physical gold is drying up. And that, as they say, is a completely different story. It is the beginning of the people realizing that the emperor has no clothes!

Temporalist's picture

I think you misread that statement.  If you continue to read the paragraph the point is that even though there is backwardation the "would-be" physical sellers/futures buyers are the market that has dried up because they don't believe they will get physical in return.

Or even the first sentence "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." which means that even with the potential for a "free profit" nobody is falling for it and wants to keep their phys.

Or as stated "Owners of real metal are increasingly reluctant to part with it at the current price."

rosiescenario's picture

If folks who sold the contracts begin to think that those they sold them to are going to take delivery, then you'll see backwardation as the scramble is on to get the actual metal now. In order to raise cash to get the metal now, these same folks are probably selling future contracts and therefore depressing the future price further below the current one.


When you see massive backwardation, we are about to get a big pop up in the underlying commodity.


How does that possibly translate into "the market is drying up"?????

StychoKiller's picture

Wimpy always said "I'll gladly pay you Tuesday for a hamburger today,"

but when Tuesday rolls around, will Wimpy be there with a payment?

Trust the Crimex at your peril...

HondaFullOfSilver's picture

The US government is creating non-existant money via QE, interest rates are zero because the Ben Bernank swears the CPI-flawed inflation is under control, and even with the sequester the US will spend 1T more than it takes in. We are at 100%? of GDP and nearly Greece.  Even in the short-term, where the USD is the best of the fiat currencies, that can only last for so long and the PIGS literally come home to roost.   When they do, they'll be bringing their friends in South America, Eastern Europe, Middle East, and it's not going to end well.

As the USD strengthens, physical gold/silver certainly may decrease, but it's strengthening against other brands of toilet paper.  It's all going to stink.


q99x2's picture

Simon Tempor to you too.

ebworthen's picture

I'll buy more physical as soon as I find a seller willing to adjust their over spot price to the market price.

OutLookingIn's picture

Market price?

What is the "true" market to value price?

Thats what physical gold hoarders are asking.

Bad money drives good money into hiding. Very few are selling their 'stash,' nor any portion of it. 

Starting to see two pricing levels; one for the "market" and the other for physical posession.



tenpanhandle's picture

GLD & SLV are and have always been bad money (bad gold and bad silver).  As historically usual, physical gold and silver, as good money, will exit the market place.  It can be seen repeatedly, that the financial media are pushing for the acceptance of bad money by interchanging gold with GLD and silver with SLV in their daily spreading of false analysis.

In China, India or my house, you will find no one wearing GLD necklaces or stacking SLV bars.

ebworthen's picture

Online retailers are charging 10% over spot on Silver, and people appear to be buying (which I don't understand).

Gold has been about 2% over spot, but with the huge dip today the retailers have not followed suit, and over spot today is between 4%-5%.

SpeakerFTD's picture

Can anyone explain to me what is going on with junk silver?  on tulving and a few other places, it is trading over bars.  never seen that before but it has been that way for a few weeks now.