Backwardation

Key Events In The Coming Week: FOMC Minutes, GDP, BOC, OPEC And More

The key economic releases this week are the durable goods report and Q1 GDP revision on Friday. The minutes of the May FOMC statement will be released on Wednesday at 2PM. In addition, there are several scheduled speaking engagements by Fed officials this week

Monetary Metals's picture

There is a often-promoted plan to grow your wealth based on the claim the dollar will collapse:

Phase 1: You gotta buy gold.
Phase 2: Price goes up
Phase 3: Profit!

This is a bit reminiscent of the underpants business model on South Park. South Park of course showed phase 2 as “???” but the analogy holds.

The story switches midway from the-dollar-will-collapse to gold-will-go-up. In fact, these are the same thing. It is important to realize because a higher price of gold does not make you richer. Aside from being wrong as a matter of fact, it is an example of dollar thinking. It comes from the belief that gold is to be sold. That is not historically how people thought about it. Gold is money and those who have it should seek to earn a return on it, not sell it.

Goldman Lists Two Conditions For The OPEC Production Cut Extension To Work

"We believe that today’s announcement is consistent with OPEC’s desire to achieve both price stability and backwardation, which will help to slow the recovery in shale oil production by curtailing the market's ability to grow future production through forward sales. For the strategy to work, however, we believe two things have to take place."

Market Mocks OPEC Crude Jawboning; Morgan Stanley Warns Of Risks To 2018 Oil Price

In the clearest indication yet that OPEC jawboning no longer has an effect on markets, and especially headline scanning algos, following numerous headlines from Saudi energy minister Khlaid Al-Falih overnight warning that the oil rebalancing is imminent, and in case it isn't, it will come in 2018 when OPEC and Non-OPEC producers may extend their production cuts, this morning oil is firmly hugging the flatline after a failed attempt to push higher earlier in the session.

Goldman Warns OPEC Production Cut Extension Will Backfire, Result In Lower Prices

"Oil prices above $60/bbl would prove self defeating in our view given the flattening of the oil cost curve and the unprecedented velocity of the shale supply response." A decision to extend cuts, "would only exacerbate the backwardation that we project... and created downside risk to our 2018 $58/bbl forecast."

Monetary Metals's picture

Every week we talk about the supply and demand fundamentals. We were surprised to see an article about us this week. The writer thought that our technical analysis cannot see what’s going on in the market. We don’t want to fight with people, we prefer to focus on ideas. So let’s compare and contrast ordinary technical analysis with what Monetary Metals does.

Technical analysis, in all of its forms, uses the past price movements to predict the future price movements. We are not here to argue for or against technical analysis. We simply want to say that it’s not what we are doing. Not at all.

Our analysis is based on different ideas. The key idea is that there is a connection between the spot and futures market. That connection is arbitrage.