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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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Fri, 02/15/2013 - 19:43 | 3248155 illyia
illyia's picture

Yes, DoChenRollingBearing. I had followed and captured that entire article. Here is the link to Antal Fekete's original pdf.

Rather terrifying, if believed.

AMERICAN BASES IN GERMANY
AND THE GOLD BASIS
Anta! E. Fekete
New Austrian School of Economics
The link: http://www.professorfekete.com/articles.asp

Sat, 02/16/2013 - 03:40 | 3248970 JOYFUL
JOYFUL's picture

Ahh, Feteke, an island of probity in a sea of monsterous Austrian mendacity...

unfortunately, any impetus that might be gained from his 'real bills' emphasis in probing the strengths and weaknesses of a possible return to 'gold standard' systems will be negated by his assignation as a mere "splittist" by the petty doctrinaire pretenders to purist Alabama Austrianism.

Feteke's well reasoned critique of the fatal flaws of the Quantity Theory of Money suffers from the same oversight as all such efforts to gild the lily - by ignoring the core issue of usury\interest systems, and concentrating on the peripheral effects of same, even the most perceptive and well-meaning economic theorist falls into the lap of the moneypower...

Feteke remains best of class in his field, but the quoted piece about German gold repatriation has the same defect as all the rest of the school, "new" or öld...naive unifocal critique of the power of the "state" while ignoring the control of the money supply by the true power to which all states are subverted and controlled.

Germany will not turn to a gold mark as an option to end the crisis, any more than Amerika will open the mint to a gold dollar....for the simple reason that both are mere satrapies to the cartel of moneychangers which all Austro-Vulgarians pretend not to notice - thereby becoming playthings of

"...those who ply sordid trades, pimps and all such people, and those who lend small sums at high rates. For all these take more than they ought, and from the wrong sources. What is common to them is evidently a sordid love of gain..."  Aristotle

cue: the usual mouth breathers and other assorted smoke-blowing crustacean monsters of the deep!

Sat, 02/16/2013 - 06:51 | 3249071 CompassionateFascist
CompassionateFascist's picture

I'll be blunt: the Jews will pound down the price of PMs until just before PonziCollapse. So they can buy-in at the bottom. Then continue to apply the Golden Rule. They think. But when push comes to shove, lead is going to be way more valuable than silver or gold.  

Sat, 02/16/2013 - 09:11 | 3249154 JOYFUL
JOYFUL's picture

Blunt's cool too! I've always preferred close-in blugeon work* to fartin around myself...

but this be ZH...creme de la creme of the pre-apocalyptic - and we have a duty to our hosts to help them stay online - and spread the gospel.

So I'll always 'hedge' a little wit the really real...always let your opponent strike first...then go for the jugular...it's jus the gentlemanly thing to do!

 

*all bold & italics -  Musta thought we mighta missed the point huh??

Think about it friend...the Ponzi Collapse don't happen till they got all the gold AND your guns...that's what Obummer's made n paid for!

Sat, 02/16/2013 - 10:46 | 3249282 SWRichmond
SWRichmond's picture

Joyful,

Usury is impossible without the backing of the "legal monopoly on the use of force".  Those you call the "Alabama Austrians" are core libertarians and, as such, eschew the use of force.  That is not to say, and no one should believe IMO, that they don't understand its application, nor are they completely unwilling to use it.  But understand that they DO see an economic system based on voluntary interaction.  A system that tolerates usury is doomed, of its own accord.  As our current system is doomed, and will fall by its own hand.

The regulatory state merely provides cover for the looters; it enables them to say "you can't arrest me for stealing / poisoning people / etc, I was following regulations".

The correct response to the interest-based money system fallacy is to allow the wash-outs to occur frequently, as frequently as they will without intervention.  The core support of TBTF is political power.  If we could, knowing that all politics is corrupt, minimize the influence of corruption in our lives by minimizing the influence of government in our lives, we could rapidly flush out malinvestments and the bad banks that made them.  The economy would reward good (work, innovation, foresight, capital accumulation) and punish bad (envy, sloth, waste, fraud, manipulation).  Thwarting this reward / punishment is the very essence of the slow but inexorable creation of the majority "free shit army", who will always vote for more government power, and thus for more corruption. 

Since most of this growth happened in the post-WWII years, if anyone would like to read this as a refutation of the idea of a "Greatest Generation" in the U.S., they are welcome to do so.  WWII taught them to revere government power.  FDR's crowning achievement.

Sat, 02/16/2013 - 12:36 | 3249463 JOYFUL
JOYFUL's picture

Thank you for your well reasoned response. We concur on the issue of FDR's legacy...but whether people any more learned to 'revere government power' before or after any particular war I'll leave open to question.

What is not open to question is where the fundamental impetus for all of these 'modern' wars has come from...the nexus of power which is the armaments\drug\resource extraction industries has only broke surface to plain view since the Ollie North\ Khashoggi-Bush\Mossad coup of the 1980's, but that is not to say it hasn't been operating all the while.

Parrallel with the myth of "Capitalism", which came out of the C19th as dual prong with "Communism" of the talmudist 'dialectical materialist' directive, was the development of  'financialisation'  - abandonment of industry(and it's norm of innovation and streamlined production) as main driver of the western economies in favor of pure capital gains -the domain of the capital rentier clique.

Extremely corrosive to the well-being of society as a whole, this new class of usury needed it's predations dressed up in a manner that could disguise the nature of their antipathy to true 'free enterprise' - and at the same time disguise who it's operators were.

For effecting this purpose they needed articulate and persuasive mouthpieces, who could sway the opinion of those naturally disposed to support the rights of the individual - in the same way that Keynes was their chosen spokeman for swaying the leftleaning crowd into their camp.

Though the original insights of Mises et al were a valuable addition to our understanding of the field of economics, they were latterly hijacked by those willing to whore for the moneypowers, and\or subtlely distorted in order to redirect attention from where it belonged - in the same way that Mullins work was distorted by Griffin.

If 'the use of force' were given the narrowest of interpretations - as in, of direct physical violence, one might accept the entreaty of the 'libertarian' lobby to be taken as some kind of Quaker like force for peace and justice in society; but as has now become all too clear to Merikans watching the rapid dismemberment of their country and their liberties, the phrase 'use of force' of course demands an expanded definition which describes the appropriation of both the tools of production and the fruits of the citizens labors by a cabal of state-sheltered crony capitalists whose only allegiance is to the flow of societies collective wealth into their own pockets....a pattern of violence and coercion to which the Austrian gang have become complicit handmaidens and abetters.

Interesting factoid: more than forty percent of prices we pay for our daily needs are compensation for capital costs incurred by the producer. It is incumbent upon Austrian economists to explain to us why our economic systems depends upon the presence of usury-based banking to function. 

Sat, 02/16/2013 - 14:48 | 3249771 SWRichmond
SWRichmond's picture

Banking is supposed to be mere intermediation, and if it were to remain as such the capital mrkets could function.

While I agree that "financialization" is the destruction of production, I do not agree that it is capitalism.  Financialization is merely just another insider wealth-extraction scheme, and relies on government to make it work.  Also, it leads to excesses, as does militarism (another function of government), both of which lead to either bailouts, wars, collapse, or more likely some combination of these.  If one is a student of history it is certainly true that wars are likely in our near future.  Genuine capitalism does not need either of these.  In fact, they are the enemies of genuine capitalism.  Sadly, this means government is the enemy of true capitalism; this is the birth of the anarcho-capitalist movement IMO.  Perhaps this is why the Framers sought to limit government.  Perhaps it is the reason America burst onto the scene some 240 years ago.

The geometric nature of the resource extraction problem goes hand-in-hand with the geometric expansion of the monetary system which is required to keep generating enough "money" to make interest payments on earlier loans.  The central banks are the enablers of this.  Absent central banks, economies would grow more slowly but organically.  Resource usage couldn't grow exponentially, because demand couldn't grow exponentially, because "money" wouldn't grow exponentially.  This is why I so frequently disabuse Martenson and the idiotic peak-oilers.

Is that you, Chris?

Sat, 02/16/2013 - 00:02 | 3248741 DoChenRollingBearing
DoChenRollingBearing's picture

+ $55,000

Very nice link, thank you.

Fri, 02/15/2013 - 17:51 | 3247875 Lore
Lore's picture

I'm sick of the pro-gold crowd cheerleading like Borg. They were ALL wrong today, except Gartman. He predicted today's trouncing. Depending how he trades, the guy might have made a cool fortune today.

Fri, 02/15/2013 - 20:59 | 3248356 Quinvarius
Quinvarius's picture

Don;t be a hater, bro.  You are crazy if you don't buy here.  You are even crazier if you got Gartmaned and took his advice.  Gartman is always wrong.

Sun, 02/17/2013 - 02:37 | 3250883 Lore
Lore's picture

I was being facetious. Gartman is a contrarian indicator, though some of his weird calls beg for inquiry.

Fri, 02/15/2013 - 19:07 | 3248067 Number 156
Number 156's picture

Im just sick of the pro gold crowd that pushed paper instead of physical.

 

Fri, 02/15/2013 - 18:20 | 3247953 swissaustrian
swissaustrian's picture

Gartman has been wrong more often than right as far as gold is concerned.

Sat, 02/16/2013 - 09:26 | 3249169 goldfish1
goldfish1's picture

I prefer Clive Maund. His charts and analysis have been spot on in recent years.

Fri, 02/15/2013 - 19:41 | 3248160 Al Huxley
Al Huxley's picture

Gartman's public statements are frequently wrong, but what makes you think that what he says is what he does?  That would make him a pretty unique guy in the financial space.

Fri, 02/15/2013 - 19:36 | 3248146 oddjob
oddjob's picture

Gartman was roadkill long ago.

Fri, 02/15/2013 - 23:17 | 3248649 Clowns on Acid
Clowns on Acid's picture

That is why he is now on CNBC....

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