TIME TO BUY PRECIOUS METALS? - DARE SOMETHING WORTHY TODAY TOO!
TIME TO BUY PRECIOUS METALS? - DARE SOMETHING WORTHY TODAY TOO!
Gold and Silver: Backwardation and Manipulation - Seeking Alpha
By: Jake Towne of Yet Another Champion Of The Constitution
If spot gold is trading at $750 and the futures market is trading at $745, that is a $5.00 per ounce risk free profit just sitting there waiting for a type of arbitrage. One could immediately sell his physical gold at the $750 price and immediately buy it at $745 in the futures market with the intent of taking delivery to meet his contractual obligations and pocket $5.00 ounce for however many ounces one wished. Buy 5 million ounces of gold at $745 and sell that same amount of gold for $750 and you have gotten yourself a cool $25 million profit less the delivery expenses, etc. Not bad. That is why such a thing does not occur very often nor does it last for long. Too many would jump on the chance for a no-risk trade of such nature. Why then are they not doing so? Antal has answered that question they are not willing to part with their gold for paper profits! That is what makes this development so noteworthy.
Let’s look at silver: Arensberg continues:
Arensberg comments that these two banks’ (cough JP Morgan Chase cough those-damn-corporate-raiders-from-the-Great-Depression cough cough) “net short positioning is equal to about 153% of the amount of deliverable silver in ALL the COMEX members’ accounts.” Sure looks like total control to me! The above is a big reason why the gold and silver markets are so tight now. Who in the right mind would enter the market to play with these giants? Again, where is their silver? So the silvers futures market is not a real “market.” More like a banker’s paradise!
Arensberg also has a section on the coin market in terms of the premium paid. Historically speaking, the premiums have been within a few percentage points of the spot value. Not anymore, gold is about 6%, and the silver premium is pretty amazing, roughly 50% over spot! Try using the law of supply and demand to explain that!
My Note: It is time to load up the applecart - Buy Gold and Silver Now!- jschulmansr
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The Significance of Gold Backwardation
I’ve written a short series on what is, in my opinion, the major economic event of gold going into backwardation and what this will mean. Due to recent interest, particularly email comments, in this article I would like to further describe this event and in the next part share links to more gold and silver news on this topic with you (as well as some objective criticism of Fekete).
I think it is also important to note that I am no expert. I fully realize I could be wrong for now, or misjudge how the government forces will intervene. It is far from clear whether this backwardation will become permanent. That said, I do believe that the resistance shackling gold and silver will be eventually be overwhelmed; it’s just a question of when. In the final analysis, Gold is the world’s greatest chance at economic liberty and a world with far less war.
Let’s return to the rice example I used in an earlier article, which is traded on commodity futures markets in a similar fashion as gold and silver are today. Let’s say I absolutely must have 1000 bushels of rice 1 month from today. At the futures market, I have two options – I can buy a 1-month futures contract and take delivery right before I need it, or I can buy at the immediate market price (or spot price) and store it for a month.
Now, let’s say rice goes into backwardation. This means that the spot price is more expensive than the 1-month futures price. So, normally I would buy the futures contract since it is cheaper and the storage cost is borne by the other party. And if enough people did this, backwardation would quickly disappear. Now why would I buy at spot price?
I would buy at spot only if I feared that within a month the other party would not have any rice to deliver. Now the strange thing is that for backwardation to continue to exist, all rice traders at the market need to believe the same thing. Why?
If other traders holds surplus rice and do not need it for a month, and believe they will get delivery 1 month later, they will release this stock into the market (driving the spot price down and the futures price up) and take delivery in a month’s time, which would give a tidy basis profit (spot price minus the futures price), plus the savings of not storing the rice for a month.
So therefore, backwardation is the sign of a very tight market, and a market that will be tight for sometime into the future – either 1) current supply is very tight, 2) future supply is projected to be very tight, or 3) there is a severe distrust in counterparties – that the short positions can deliver the goods on time per the contract, or vice versa that the long positions will not have the cash.
That said, backwardation in seasonable, weather-dependent perishable commodities like rice or corn is certainly not unheard of. It even sometimes occurs with industrial commodities like lead or copper. Sometimes it can even be the natural state of the market.
However, gold futures are completely unlike these other commodity markets. Gold is mostly traded solely as a “store of value”; the jewelry or electronics or dentistry demand pales in comparison to the quantities of the yellow metal traded as a store of value (even an “anti-dollar” if you wish). In other words, gold is not a consumable market.
And here is the final piece to the above from South African Daan Joubert, quoted at lemetropolecafe.com. Gold backwardation can only mean that either “a) There are enough people so concerned about non-delivery that they will pay a large premium to get their hands on gold right now” or “b) There are no large holders of gold who have sufficient faith in the futures exchange to exploit the [backwardation].”
Here is an update on the backwardation in gold that started on December 2 at an annualized discount rate of 1.98% and 0.14% to spot in the December and February contracts. It continued and worsened on December 8, 9, and 10 as shown by the corresponding rates widening to 3.5% and 0.65%. It is nothing short of awesome. This is a premonition of a coming gold fever of unprecedented dimensions that will overwhelm the world as soon as its significance is fully digested by the doubting Thomases.
Keynesian economist John Keynes once pessimistically noted, “In the long run, we are all dead.”
I say, YES, the day when gold or silver breaks the COMEX IS death.
Death to the Keynesians for all the havoc they have wrought.
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Is The Second Great Depression Imminent?
By: Lionel Badal
By: Dr. Duru of Dr. Duru’s One Twenty
The first signs of fresh dollar weakness are finally showing up. The chart below (click to enlarge) shows a potential double-top in the dollar. Some technicians may prefer to call it a head-and-shoulders pattern.
It is at these kinds of critical transition points that people who want to cling to the former trend will proclaim the loudest that all is well. Dollar bulls surely believe that the fundamentals of the currency have never been better given the world’s belief that the dollar represents a safe place to park in a world of turmoil. Maybe major global governments borrow and print even faster and harder than we are doing. If that happens, I will have to like gold even more since its global supply will not increase nearly as fast as the supply of global money. Regardless, we should all know by now what results when a massive crowd jams into one side of a trade - short-term Treasuries represent the powder keg du jour.
Until recently, it has been difficult to play commodities in anticipation of reflation given prevailing downtrends. Gold has held up better than most but it too is still caught in a downtrend of lower lows and lower highs. The recent weakness in the dollar has perked gold back up, and I am sticking to it as one of my favorite places to be for 2009.
Be careful out there!
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Will We See A Big Upward Move in Gold?
By: Mark Courtenay of Check The Markets.com
Did you know that the Federal Reserve Bank owns gold certificates? Mounting evidence suggests the Fed intervenes in and participates in the gold and silver markets on a regular basis.
Interviewed Monday last week on the “Trading Day” program of Business News Network in Canada, former Federal Reserve Governor Lyle Gramley hinted that a big upward revaluation of gold may figure heavily in the Fed’s attempt to rescue the U.S. economy.
The program’s guest host, Niall Ferguson, an author and history professor at Harvard, asked Gramley, now senior adviser at Stanford Group in Houston, about the seemingly grotesque expansion of the Fed’s balance sheet in recent months.
Ferguson asked: “I’ve heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed’s reputation?”
Gramley replied: “I think you have to reckon with the fact that one of the Fed’s assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed’s leverage would look a lot less than it is now.”
While valuing the U.S. government’s claimed gold reserves at today’s Comex closing price of around $822 per ounce instead of the government antique bookkeeping entry of $42.22 per ounce would indeed vastly expand the government’s monetary assets, it might not be enough to offset the liabilities and guarantees the government lately has taken on.
But the job might be done by revaluing the gold to $5,000 or $10,000 per ounce, as the British economist Peter Millar speculated two years ago might be necessary to prevent debt deflation: yet this is admittedly speculation.
What did Gramley mean by “…the Fed’s leverage”? That would suggest that the Fed not only owns “gold certificates” but also future contracts and options on futures. They might be big benefactors in a gold squeeze.
Speaking of a gold squeeze, I read another report from the Gold Anti-Trust Actioin committee (GATA) saying that the Comex is warning brokers of a December gold squeeze.
Yes, the Comex is alerting various futures firms about the potential of a squeeze on the December contract and is advising the $840 December shorts to exit their positions. That is the remaining open position.
There have been 12,636 notices of delivery. The shorts have until December 31 to make delivery. Normally they deliver early to take in cash and earn the interest. They must be delaying.
As I understand the situation, that represents about 40 percent of the gold available at the Comex, and of course someone could enter the scene late, buy February gold, and then spread into December, which would stun the shorts.
My broker friend said his back office said this sort of alert is highly unusual and that the concern is real, not only for gold, but for other commodities too, like copper and palladium, as there is a good deal of talk of taking deliveries there too. But gold is the one for which the advice to cover went out.
This is an extremely productive development and could spur the price of gold up quickly as word spreads. As we all know, buying Comex gold and silver (the cheapest way to buy precious metals) makes all the sense in the world in this financial environment.
It might be one of those “ready, get set, not yet” approaches to what an investor should do. The economic news and the relapsing into the next and possible worse phase of this credit crisis, great-recession, and deflationary mess might delay the upside potential on commodities.
But if you’re a trader (a.k.a. “gambler”) there might be a short-term pop in at least gold over the next couple of weeks…maybe spilling into January 2009 where quick profits could be made….as well as some quick and disappointing losses.
Are you an investor, a short-term gambler, or both? No matter what the answer, if you know yourself well then you know how you might respond to all this news and the rumor mill. Best of luck!
When FCX dipped back down near $16 after the suspension of their dividend I decided to pick up a few shares for a quick trade. I’m fortunate that it worked out.
I firmly believe that there will be a trading range for all the better commodity stocks and ETFs that will give us several chances to buy low and sell high over the months directly ahead. Your comments on that will be appreciated. Happy holidays to you all.
Disclosure: Long GLD, SLV, FCX, SLT.
All of these measures will have an impact on economies, no doubt on that. Before the end of 2009 an –artificial- recovery will take place. Good news you may think? Not at all…
What I can tell you is that one day global conventional oil will peak… I think it is going to peak very soon. The main problem here is that the existing fields, many mature fields, are declining.
Expansion becomes impossible without abundant cheap energy. So I think that the debt of the world is going bad. That speaks of a financial crisis, unseen, probably equalling the Great Depression of 1930; it’s probable we face the Second Great Depression. It would be a chain reaction, one bank would fail, and another one would fail, industries will close…
What is commonly known as Peak Oil, a decline in global oil production is about to happen: you can ignore it, fight it, but to be sure, you will not escape from it. I will not enter into the details of the Peak Oil debate, an endless one. Nevertheless, here are statements on Peak Oil held by some of the most authoritative groups:
Peak oil is at hand with low availability growth for the next 5 to 10 years. Once worldwide petroleum production peaks, geopolitics and market economics will result in even more significant price increases and security risks. To guess where this is all going to take us is would be too speculative.
The end-of-the-fossil-hydrocarbons scenario is not a doom-and-gloom picture painted by pessimistic end-of-the-world prophets, but a view of scarcity in the coming years and decades that must be taken seriously.
This is an apocalyptic scenario. In terms of industrial production, in terms of the food supply but above all in the terms of the transportation sector, we cannot continue as we now are.
As oil prices rise, it will be millions who suffer, millions of ordinary people who are just trying to get on with their lives, millions of ordinary decent people will be forced into states of anxiety, depression, fear and anger.
Voters take to new ideas, even radically new ideas when the system that they have trusted, worked with, admired and felt comfortable with falls apart.
Peak Oil may well be an important catalyst that helps us to win political power because we are the ones talking about it now.
Wake up!
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