Gold Caught With Its Backwardation Showing

Monetary Metals's picture

With all the discussion on the Internet, some of it confusing, we thought a picture would be worth a thousand words.

Backwardation is when there is a profit to decarry the metal.  This is the simultaneous sale of metal in the spot market and purchase of metal in the futures market. Selling is on the bid and buying is at the ask. So the spread one could earn is the decarry: Spot(bid) – Future(ask).

We normally quote this as an annualized percentage (the basis), but we thought we would show the raw numbers. This graph was made about 10:15am ET on March 4.


Picture of gold backwardation


Sure enough, there is a 76-cent per ounce profit to be made decarrying gold. This is a small number compared to the price around $1600, and it could be easily missed. It is the actual profit one would make in the real market by this arbitrage (not including commissions and fees, which a bullion bank would not be paying).

It is fascinating that it persists. It’s been there for weeks! Does no one have gold to put towards this trade? Is there no attraction to a 0.3% annualized return on a risk-free trade maturing in less than 60 days?

Monetary Metals publishes the basis and cobasis with commentary every week (free registration required).

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
MeelionDollerBogus's picture

ANY metric, anything you can measure can be rigged.




Bid/ask spreads.

Quotes total and/or per time unit because many will go unfilled.

So what is NOT able to be manipulated?

Malleability. Conductivity. Density. Chemical reactivity. Mass.

Problem solved.

Oh, almost forgot. You will need 1 life-jacket & one tall tale about boating accidents.

brokesville's picture

martin a armstrong , if you want to work your gold otherwise go stare at your "precious"

filmflam's picture

For those who actually trade, gold broke it's downtrend line yesterday and it is backtesting both that line and sitting on its current uptrend line.  VERY good risk/reward to go long.

Meremortal's picture

I agree and I bought 3 minutes before the close.

flacon's picture

Did you see them hammer gold down at precicely 3:59:50pm today? Literally ten seconds before close they pushed the price down. 


Gold has to break (and hold) $1,585.... and soon.....

Check out NUGT for a gold miners index play. Don't NUGT hold too long (because of decay), but it can make big moves when the miners get some juice, which is likely to be very soon. 




MeelionDollerBogus's picture

holy shit, it's manipulation!! Gold dropped a whole FUCKING DOLLAR.

Jim Sinclair is right when he says most people's balls will flat out be busted when gold is in the 4500-5000 range - the moves then will scare people into heart attacks and that will be for NORMAL trading.

I fully expect then to see 200/oz moves REGULARLY - up and down - and 800/oz moves for the manipulation & wall of worry scares.

Be ready for it.

AllThatGlitters's picture

I was noticing that filmflam (photographer by chance?).  Silver did it several days ago and it keeps testing that line, while a rising longer term trend line has risen to meet it.  Perhaps charts in a minipulated market mean nothing, but look at the churn in silver, at what appears to be a major inflection point:

Hard to deny that there is a real battle right here, right now, but the question is, who has more power to win the battle?  

tony bonn's picture

the backwardation is even greater when talking substantial numbers of contracts where physical delivery is involved....lbma has frequently paid cash - and it was not optional - of substantial premiums to terminate physical delivery. it is not commonly known.

and the anecdotal reports about what is available on the street for itty bitty 1oz coins is nonsense. that is throw away. the comex is in the midst of its vanishing act. it will not be in the gold business within a couple of years due to the fraud....

the larger issue is that gold is in backwardation at all - a scenario which should never obtain...the fat lady is most definitely clearing her throat for her fiat aria....


You have to admire how the bastards operate.  The stock market is rolling today to a new all time high, and gold/silver were up around 2% this morning as well.  I guess they couldn't allow us to have one good day, so now the metals are getting slammed again nearly back to the day's starting level.  DOW and SP roll, while metals take a hit again.  None of this makes any sense, except for the theory that TPTB are trying to destroy PM morale.

AllThatGlitters's picture

I continue to see people posting the "fact" that premiums are rising on physical.

Yet I don't see it yet.  Retail physical supply from dealers continues to remain inline with spot prices.

Premiums from the US Mint rose on Silver Eagles, sure.  But what about Gold Eagles and generic Gold / Silver bars and rounds?


You can still buy 100 oz silver bars for less than $0.50 over spot and 1 oz silver bars for just $0.74 over spot, with free shipping.



Look at current spot (which is coming back down fast right now), and the premiums on physical, right here:


Rest assured, I'm bullish the metals, as my name implies, but what other data point is there that people are leaning on to claim premiums are rising on physical, other than the fact that Silver Eagle premiums have popped a bit.  The gouging that occurred when the mint ran out in December has completely disappered.

The story is the same on the silver price page. 

cbaba's picture

But what about Gold Eagles....?

See the link below from Apmex, one of he biggest online dealers in US.

on top of the page, you will see spot Bid/ask price which is very close to comex

when you want to sell your 1 oz Gold American eagle coin ( random year ) you expect them to buy your coin at the bid price or closer  to bid price right ?

No, look at the APMEX buy price at the bottom of the coin picture, its $40 above the spot bid price.. that means they are paying you 2.5% more than the spot price, this is same for at least couple months , its always +$40

I call this backwardation..





flacon's picture

American Gold Eagles have additional SILVER and COPPER added, kind of like the Krugerrands. So the dollar value of a "ONE OUNCE GOLD EAGLE" is actually more than the spot price of gold due to the additional metals. 



brokesville's picture

gold eagle has one oz gold and is over one oz in wt due to metal add to make durable jeeeeezzzzzz

cbaba's picture

Yes correct, the purity is 22 carat which is 91.67% gold , but the coin is heavier than 1 oz,

it is made using pure 1 ounce of gold plus copper and trace of silver , when you melt the coin you get 1 ounce pure gold.

Clas Greve's picture

Out here on the east coast of canuckland there is a $6 premium on an ounce of physical silver from the Only coin shop out here, though junk silver (dollars and 50 cent pieces are only 5% over spot )... Scotia Bank's premium is about a buck cheaper on the eounce.

flacon's picture

You know you can order gold and silver from USA and it's tax free, right? I have ordered monster boxes from APMEX and never had a problem - just make sure that you are ordering "Bullion" (ie, .999 or .9999) products. Mixed metal coins such as the American Gold Eagle or Krugerrand ARE taxable. 

MeelionDollerBogus's picture

I'll bet anything ordering from the USA gets Canucks into an IRS database. No thanks.


Agreed, I don't see the premiums rising at all.

Lordflin's picture

Perhaps you have better suppliers than I do, but I have encountered better than a 15 percent increase in premiums from the start of the year... I recognize that that is anecdotal... Is your information better?

Herdee's picture

Say what you will about the present backwardation but I'm interpreting this differently.I believe it's the start of concern over the next phase of FED policy.The FED Chairman comes from humble roots.Look at his start in life.He is also a student of the Great Depression.He's following a very important playbook.Recently a number of Congressmen and Senators took issue with what the Chairman calls "his dual mandate."The Congress has given the FED the other mandate of targeting employment or unemployment,whichever way you want to look at the situation.Legislation has already been introduced to try to get rid of and change the dual mandate(get rid of the FED's responsibility to taget unemployment).That will be voted down most certainly by the Whitehouse.Don't forget one thing,the Chairman vowed not to forget the ordinary working people and has a specific point that he is looking for in the employment statistics.That's why QE will continue and interest rates will stay low,until the second mandate is fulfilled.Look at education for instance,community clleges that train tradespeople can't get the needed funding to train anybody.Where education in China is basically free if you qualify.IMO,the initial backwardation indicates greater risks reflected in China's housing bubble and in Europe's degrading economic situation with it bordering on depression.Top it off with uncertainty with sequester.Gold is a fear factor as well.If the housing bubble bursts in China,I predict an immediate rush into Gold and the U.S. Dollar and a drop in oil as the world economy slows even more.There has to be a final capitulation of all world bad debt caused by derivatives (ask Warren Buffet) and China's housing bubble might be the trigger for the needed washout.We'll see.Krugman,where are you hiding?

Lordflin's picture

The argument goes... there is an appearance of backwardation when contracts are rolled over at the end of the month... but that this phenomenon in metals is occurring far enough out to imply that folks are losing confidence in delivery...

Well... there has been a steady increase in premium... Clearly there is greater interest in the physical market.

One explanation is that prices in physical are starting to dictate spot, while confidence is lost in the paper market... If this is the case it portends an uptrend in the metals... Possibly huge, as the physical market is a fraction the size of the paper market.

This imminent trend up is anticipated by many of the major players in metals. I am not entirely convinced only because I know that the forces at play to keep the metals surprised are huge... What is at stake is much of the world's imaginary paper wealth... Well, not imaginary so long as folks keep the faith... Metal prices effect that faith, as I am quite certain most of you know.

In any event, most of my wealth is intangible assets with intrinsic value... although I have a speculative position in the miners. I will win by sitting where I am at and watching... Sooner or later this thing will blow... Hmmm, need to be careful with that word... Blow as in an explosive effect... Some of you younger folks might get the wrong meaning...

tenpanhandle's picture

to prevent confusion, please insert space between "in" and "tangible" if you don't mean "intangible" and you mean "in tangible".  Damn, now I'm really confused.

the grateful unemployed's picture

the gold market is under some pressure, and it might be good to ask why. stocks rising gold falling, not good if you live on Wall Street

SAT 800's picture

There is no backwardation in the Gold Futures complex. the author reveals that he has the perfect credentials to be a Zero Hedge contributor; eg. he knows nothing. 15seconds looking at the list of futures settlement prices which are all on one convenient page at will tell you what the facts are; then you can skip the BS.

Bubble's picture

erm... he's not talking about backwardation in the futures. You reveal you have the perfect credentials to be, well nothing that requires English reading. Try looking at the articles before writing them off.

SAT 800's picture

He is talking about Futures prices; there's nothing else to talk about; it's the only place where contango and backwardation occur or exist; and as I say; if you will stop typing for one minute and read the price quotes on the CME page; you will see what the facts are; there is no backwardation.

ChanceIs's picture

Fekete states that the CME publishes nothing but BS and/or is in league with the bullion banks.

Parties are still litigating over published electricity prices and supply/demand estimates lo these 13 years after the California blackouts.

SAT 800's picture

You're a fool and you're misquoting an honorable academic; he never said any such thing.

Pseudo Anonym's picture

that's interesting.  he must've had a change of heart

Fekete states that the CME publishes nothing but BS and/or is in league with the bullion banks.

the fame to fekete and his disciples' theory is that there is no fraud; and if there is, basis/cobasis doesnt lie and cannot be manipulated

GoldForCash's picture

Stock your metals in this order
1. Lead.....38 Special type
2. Silver
3. Gold

Room 101's picture

Naaah. 9mm Luger and .22LR. If you can find them. 

whotookmyalias's picture

1b - at least 2 guns that will shoot the 38 special (2 is 1, 1 is none)

Bastiat's picture

.38sp - old school revolver round - love it.

kaiserhoff's picture

It's only in the delivery month, which the previous THREE PART SERIES on this topic managed to screw up.

It's a tiny amount, certainly less than the fees and bid/ask differential for a retail customer.

It's a function of counter party risk, but at least this shows the true pricing relationships.

A more interesting question for traders and the larger ZH Community is why option pricing on PMs and every other commodity has gone ballistic.  With zero interest expense, options should be dirt cheap.  They are not, which means that real volatility (scared shitless about the future) as opposed the the VIX, is at or near an all time high.

whotookmyalias's picture

The peace of mind that I have the physical on hand and don't have to "hope" for delivery is worth far more than $0.76 per ounce.

Not knocking "hope" as a strategy, I just think it should be a last resort.

mogul rider's picture





Who cares it sits in my basment after delivery.

In fact after the gold and silver rape this month there is much more down there than last year.

I will finish off this rape by buying the 6 major gold and silver producers for cents on the dollar today as you pseudo gold bugs run for the hills screaming like nancy boys at a Madonna concert.

Like I did every day this week.

At around 2300 gold and 50 silver the idiots will be back yapping about 30,000 gold and 6000 silver.

BFTD will be all the rage again

Of course I'll sell it to you then.

 Like I did at 1900 and 49.10


jeffgroove102's picture

Uuuuh, gee thanks genius, like how would anyone here know anything about not selling a parabolic spike in silver.

MeelionDollerBogus's picture

by plotting scatterplots in gold and silver and ROC roll-forward charts for gold vs prior repeat cycles like 52-week, 131-day and 277-week patterns.

That's how I found the pattern. , , ,

q99x2's picture

Yes there is but there is no gold. Call in and try to get a price for what Gold is selling for. Better luck getting a price from Ebay.

mantrid's picture

Backwardation is when there is a profit to decarry the metal

No it's not. It's short-term speculation that gold might plunge in April significantly. Backwardation is when you have inverted curve over long period.

Does no one have gold to put towards this trade? Is there no attraction to a 0.3% annualized return on a risk-free trade maturing in less than 60 days?

Of course there is, otherwise contract would not trade, would it? It's just paper traders who stepped out, probably insider rumours. They're weak hands max leveraged who can't risk margin calls.

new game's picture

also, miners refuse to sell at these contract prices-big chunk!

i say when fear rising add at increased rate till shorts have to cover...

markets of paper are like jacking off to a centerfold vs warm wet spot in your bedroom...

Crazed Smoker's picture

Many hold physical as insurance in case of a financial event that should disrupt currencies or paper markets.   0.3% for 60 days is 1.8% per annum additional insurance cost for physical versus paper.  It's a real cost that shows a shift toward valuing physical. 

eddiebe's picture

The sovereign bond and fiat con, just like the Tulip bubble con, work until they don't.

At this point in time especially, a bird in hand beats two in the bush.

dark pools of soros's picture

That's also what lazy porn stars say

mick_richfield's picture

I think this can also be understood as the market saying:

  If I loan my gold to someone for 1 month, there is a 0.3% chance I won't get it back, so that's what I will charge them.

I think the market has a ways to go to before it attains wisdom. 

I would set those odds two orders of magnitude higher.

tradewithdave's picture

Precisely.  This number is the coefficient of people who understand the reality of being corzined divided by the number of people who do not understand the reality of being corzined.  As you can see there are a very small number of people who do not accept "risk free" as being entirely without risk even when relative to a bullion bank as the counterparty. 

What this tells me is that the vast majority of people do believe this is a risk-free trade yet they are not participants in this market.  Of the number of participants in this market (in reference to the entire market - including non-participants) quite a large percentage of players view this as quite risky. 

In summary, those who are close enough to tell that the attractive TBTF super model is indeed "a pig with lipstick" are not interested in becoming intimate, while the vast majority 99.7% have no idea what's headed their way and are the same people who bought that T-shirt that says "Either you love bacon or you're wrong" not realizing that they were staring into a mirror the entire time.  They themselves are the answer to the proverbial question of "What's for dinner?"  The answer would be ham.