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Gold backwardization - so what?

Posted on 05/26/2013 1:48:13 AM PDT by djf

Some gal on the radio is talking about permanent gold backwardization.

I know the gist of things means that the futures price is lower than the spot price, but what does this whole thing mean exactly? She says trade would just stop. Why would that be?

Anyone know about this? Does it mean the quoted spot price is basically meaningless?

KEYWORDS: cabal; corruption; creditrating; gold; goldchart; goldprice; karenhudes; vanity; worldbank

1 posted on 05/26/2013 1:48:13 AM PDT by djf
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To: djf

Gold and Silver are commodities with high stockpile-to-restock ratio. This means that there is a large stock of Gold and Silver compared with the yearly increase in those metals from mining.

Backwardation in this kind of asset is extremely significant. It means that traders are unwilling to enter into a contract to buy Gold at a distant date - even though there is notionally a lot of Gold available in the system.

Which is another way of saying - they don’t think they will get what they paid for. Gold backwardation would be a sign of a run on the LBMA bullion system - and the trainwreck collapse of the global fiat system.

2 posted on 05/26/2013 2:26:31 AM PDT by agere_contra (I once saw a movie where only the police and military had guns. It was called 'Schindler's List'.)
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To: agere_contra

I guess I don’t understand the whole spot price vs. future price thingie. I mean even as things sit today, the “quoted” {who in the world puts quotes around “quoted”?) spot IS NOT what you would pay for the real deal.

If people revolted against buying futures, doesn’t it make sense that current spot would skyrocket?

But this gal says it means the relationship between gold and the dollar is done. Kinda like the “spot” is meaningless, even though it’s in a sense, more meaningful then the future price.

My head hurts!

3 posted on 05/26/2013 2:59:04 AM PDT by djf (Rich widows: My Bitcoin address is... 1ETDmR4GDjwmc9rUEQnfB1gAnk6WLmd3n6)
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To: agere_contra

>> Gold backwardation would be a sign of a run on the LBMA bullion system - and the trainwreck collapse of the global fiat system.

...or it could simply be a sign that the gold bubble is bursting.

4 posted on 05/26/2013 4:53:30 AM PDT by Nervous Tick
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To: Nervous Tick

There is a bubble in paper claims on gold. I believe a ratio of 100/1 which may appear high, is still conservative.

The physical price of gold is all that matters.

And if you do not hold it you do not own it.

5 posted on 05/26/2013 5:11:04 AM PDT by highpockets
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To: Nervous Tick; djf; agere_contra; Kartographer; highpockets

The first article documents the track record of this insider

May 15 2013
Banking insider: Deutsche Bank in danger zone and will go belly up

In January of this year, V reported that Japan would begin the primary currency war now taking place around the world, that would eventually be the lynchpin to the global financial collapse to come. Additionally, the Guerrilla Economist months in advance predicted the Dow would climb to over 15000, and that precious metals like gold and silver would be forced down to help push the dollar to be the primary and final safe haven for global investors.

Since V’s prediction on Japan, and on their actions which resulted in the ongoing currency war, the move out of Japanese and European assets has accelerated, with the U.S. stock market rising over 2000 points, and the dollar climbing to nearly 84 on the dollar index.


This second article has a video on the page that is the interview. During the interview, the insider tells how extremely difficult it is to acquire gold, and that silver and gold are being manipulated and exactly what it means in terms of the global collapse of economies.

May 25 2013
Banking insider: The Japanese have lost control of their bond market (Photos)

I basically just got this hot off the press, and hot from the board rooms over here. The Japanese, and this is official... I’m going out on a limb saying this, and you can take it for all it’s worth... the Japanese have lost control of their bond market.


V: What that simply means is... see the stock market has been rising in Japan, as well as over here because of bond prices. Were in a very unique environment where, if the bond market goes bust, you’re going to see the Nikkei go bust with it, as well as real estate.

That also coincides with us. The collapse that is going to occur here, is going to be a trifecta of bonds, stocks, and real estate combined. So when the Japanese have lost control of their bond market, and the yields are getting higher and higher, and the interest rates are starting to climb on it, nobody’s buying it. So right now, the Bank of Japan has ordered all the public pension funds to begin to buy the Japanese debt. -

6 posted on 05/26/2013 5:20:43 AM PDT by Whenifhow
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To: djf
Soros is manipulating the market. Paper gold is affecting the market. Gold and silver are used in electronics and are of value like money so they will always have value.
7 posted on 05/26/2013 5:26:49 AM PDT by mountainlion (Live well for those that did not make it back.)
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To: djf
Backwardation does not mean that spot price is meaningless. As noted above, backwardation is a market condition in which the price for some commodity to be delivered today (gold, wheat, pork bellies, Idaho potatos, whatever) is higher than the price for the same commodity delivered in the future.

Most users of commodities are happy to purchase them via a futures contract. "I'll buy 10,000 tons of wheat at $XX a ton, to be delivered in 90 days." If he and a seller agree on $xx then the buyer waits 90 days and takes delivery on the specified date.

But, what if the buyer has some reasonable doubt that the wheat he can purchase in that futures contract will actually be "there" to be delivered?

Well, to be Really Safe he might insist on taking delivery of the wheat 90 days before he needs it, storing it himself, just to be certain that he has it available for making bread, crackers, and flour.

And, if a lot of buyers are making that kind of demand, then the price per ton of wheat delivered TODAY goes higher than the price of wheat delivered 90 days from now. Like anything else in a market, increasing demand is always reflected in icreases in price.

This condition is called "backwardation" (yeah, I think it's a clumsy term too), because it names a market condition that is "backward" (so far as pricing is concerned) from what you'd find in markets that are not impacted by doubts concerning the availability of a commodity in the future.

In ordinary conditions, a futures contract for wheat will be somewhat higher in cost, because the seller will incur "management costs" (acquiring the commodity himself if he doesn't already have it; storing it; transporting it from where he got it to where he has to deliver it; etc.), and the seller will want to pass those management costs along to the purchaser of a futures contract. And, so, the price of wheat for delivery TODAY is ordinarily going to be lower than the price of wheat delivered in 90 days.

Unless, that is, the buyers of wheat are worried that the sellers of wheat 90 days from now won't be able to fulfill those contracts. In that case, the demand for wheat delivered TODAY increases, and when it increases so much that the price is higher than wheat delivered 90 days from now -- well, then the prices are "backward" from what they normally are. Hence, the term "backwardation."

8 posted on 05/26/2013 5:30:29 AM PDT by Brandybux (Oportet ministros manus lavare antequam latrinam relinquent.)
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To: djf

The “spot price” is essentially the price of paper gold. The price of bullion trades at a the spot price plus a premium that reflects the real cost of buying gold. The paper gold may or may not be backed up by an actual store of bullion. There is evidence that much of it is not. The real price of harrd gold is somewhat higher than the spot price now because the lower spot price has people going to their dealers for more bullion. Demand rises for bullion even as it falls for paper gold- same thing for silver. The spot price was forced down twice when very large volumes of paper gold were sold all at once at a time of day when there were few buyers active, moves that would seem to be calculated to force the price down rather than to obtain maximum return. China benefits because China ramps up its buying whenever the price falls like that.

9 posted on 05/26/2013 5:31:45 AM PDT by arthurus (Read Hazlitt's Economics In One Lesson ONLINE
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To: Brandybux
Backwardization (sell now for the better netback) and cantango (future price is higher so slow down sales) are keystones in the oil biz.
10 posted on 05/26/2013 5:33:38 AM PDT by Eric in the Ozarks (NRA Life Member)
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To: Nervous Tick
Gold has been trend downward for a while.

11 posted on 05/26/2013 5:35:32 AM PDT by Jack Hydrazine (I’m not a Republican, I'm a Conservative! Pubbies haven't been conservative since before T.R.)
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To: agere_contra

your third point is not supported by your first two points

12 posted on 05/26/2013 5:47:52 AM PDT by babble-on
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To: Jack Hydrazine


13 posted on 05/26/2013 5:49:04 AM PDT by babble-on
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To: highpockets

The physical price of gold is all that matters.<<

BINGO!...You know its a ruse when the spot drops but the premium rises!....They can manipulate the spot and futures, but that cant manipulate the price/premium someone will actually sell their gold!

As an example, If gold goes to $700..the premium will rise accordingly....probably around $300- $600..hence rendering golds REAL value @ $1000-$1300

14 posted on 05/26/2013 6:27:20 AM PDT by M-cubed
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To: djf
but what does this whole thing mean exactly?

It means there is an underlying fear the real thing won't be as readily available in the future as paper contracts portend.

15 posted on 05/26/2013 7:21:45 AM PDT by Errant
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To: Brandybux
Thank you, excellent explanation.
16 posted on 05/26/2013 7:59:14 AM PDT by American in Israel (A wise man's heart directs him to the right, but the foolish mans heart directs him toward the left.)
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To: djf
If you're bearish on the price of gold you can't short the physical metal, you can short the futures. So, if major market players are placing downside bets in gold, the futures will trade cheap.

You often see this in emerging market equity indexes where, e.g, the futures on the Israeli TA-25 index will often be in backwardation. Smart fund managers use this as a free way to pick up carry versus a long-only mandate; the manager of an Israeli stock fund would just buy the cheap futures instead of holding real stock.

Well-managed gold ETFs should outperform physical gold while this continues.

17 posted on 05/26/2013 8:13:46 AM PDT by Vide
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