Backwardation

The selloff in silver has had an unexpected effect on silver spreads.

Think sentiment in gold and silver are the same? They violently diverged this year. The difference could have a profound impact on your trades.

At times silver metal is being dumped in quantity in the spot market, and at other times paper silver is being bought aggressively in the futures market.

With the Chinese property bubble set to burst, the bust may lead to even greater demand for physical bullion from the gold loving Chinese.

Remember that persistent seller of epic and oddly periodic amounts of gold futures contracts, whose dumps have resulted in two NYMEX "stop logic" shutdowns in the past month alone, and whose daily tape bombing is now watched carefully by all (even the CFTC's Bart Chilton who can rejoice - the CFTC is now open and he can go back to "supervising" the market and stuff)? Well, he is mysteriously absent this morning, as gold (which is now back in backwardation for the second day in a row) soars by $50 from $1275 to $1320 in the matter of minutes, showing just how furious the short covering spreed in the gold space can and will be when it becomes clear just how right Dagong was. The next such instance of clarity we expect will take place in December, early January when the farce repeats itself.

The end. The dollar collapsing into zero interest is like a spacecraft crashing into a black hole. The singularity's pull is irresistable.

The prices of the metals were down sharply last week. Was this manipulation? As you’ll see below, the picture in silver is astonishing.

An exclusive SmartKnowledgeU interview with World Bank Whistleblower Karen Hudes, in which we discuss the growing adoption of competitive currencies to fiat such as gold and silver, the reasons why the masses still largely remain ignorant of banking criminality, and the turniing tide against immoral Central Banking activities.

What is offsetting the drop in crude prices following Obama's latest embarrassing backtracking from his "blow things up first, ask Congress later" peace track? According to some, it is this note from Goldman which suggests oil price pressure from an improving geopolitical picture will be offset by rising backwardation.

A COMEX default on delivery of precious metals and specifically of gold bullion bars remains a risk. It is of significant importance and that is why we have covered its possibility since 2011. A COMEX default would have serious ramifications not just for precious metals markets but for the wider commodity markets, for the U.S. dollar and all fiat currencies and our modern  monetary system.

There is a tradable approach to analyzing the fundamentals of supply and demand in the monetary metals markets. This article is a brief summary of the approach we take...

This week will see the end of August trading and September is, along with November, one of the strongest months to own gold. This is seen in the charts showing gold’s monthly performance over different time frames - 1975 to 2011, 2000 to 2011 and our Bloomberg Gold Seasonality table  from 2003 to 2013 (10 years is the maximum that can be used).

Thackray's 2011 Investor's Guide notes that the optimal period to own gold bullion is from July 12 to October 9. During the past 25 periods, gold bullion has outperformed the S&P 500 Index by 4.7%.

One of the most published academics on gold in the world is Dr Brian Lucey of Trinity College Dublin (TCD) and he and another academic who has frequently covered the gold market, Dr Constantin Gurdgiev have just this week had an excellent research paper on gold published.

They have researched the gold market, along with Dr Cetin Ciner of the University of North Carolina and their paper,  ‘Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates’ finds that gold is a hedge against US dollar and British pound risk due to “its monetary asset role.”

Since February, there has been at least one silver contract in backwardation and since May 31, the September contract has been backwardated. But that has now come to an end.

Gold traded near a two-month high after holdings in the largest ETP posted the first weekly expansion this year and markets digested the very robust global physical demand data reported last week . Demand from China and India is projected to to soar to 1,000 tonnes each in 2013 and mixed U.S. data has boosted gold’s safe haven appeal.  Gold forward offered rates (GOFO),  remain negative and are becoming more negative. This shows that physical demand is leading to supply issues in the highly leveraged LBMA gold market. GOFO  rates are those which  contributors may use to lend  gold on a swap for  dollars, according to the  London Bullion Market  Association and the negative gold interest rates show a preference to own gold over dollars by bullion banks.  Negative 1, 2 and 3 month GOFO rates mean that bullion banks lent their customers, including other bullion banks,  gold to obtain a positive return, thereby increasing the "paper" gold supply. Some may now may be struggling to get their gold  back which may explain the significant decline in COMEX gold holdings of certain bullion banks (see commentary).  This is creating significant supply demand issues in the physical gold market which should lead to higher gold prices.