{"id":28531,"date":"2013-02-15T19:14:24","date_gmt":"2013-02-15T18:14:24","guid":{"rendered":"http:\/\/feedproxy.google.com\/~r\/zerohedge\/feed\/~3\/xKkGSTPQ16k\/story01.htm"},"modified":"2013-02-15T19:14:24","modified_gmt":"2013-02-15T18:14:24","slug":"gold-leaps-into-backwardation","status":"publish","type":"post","link":"http:\/\/rinf.com\/alt-news\/breaking-news\/gold-leaps-into-backwardation\/","title":{"rendered":"Gold Leaps Into Backwardation!"},"content":{"rendered":"
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Since late January, the February gold contract has been in backwardation. \u00a0This means that one could make a profit by simultaneously selling a gold bar and buying a February contract. \u00a0One would still have one\u2019s gold plus a little extra. \u00a0I coined the term \u201ctemporary backwardation<\/a>\u201d, to describe this curious and very recent phenomenon. \u00a0In our \u201cnew normal\u201d, most gold and silver contracts go into backwardation as they get close to expiry.<\/p>\n

When the Feb contract first jumped into backwardation, it was well within the \u201ccontract roll\u201d period. \u00a0The roll is when naked longs sell the expiring contract and buy a contract for a more distant month. \u00a0This heavy selling of the expiring contract pushes down its price. \u00a0Since cobasis is Spot minus Future (oversimplified slightly), the cobasis rises purely due to the mechanics of this selling.<\/p>\n

But today something more serious occurred. \u00a0The April contract, which is not yet being \u00a0\u201crolled\u201d, fell into backwardation. \u00a0See the chart.<\/p>\n

\"This<\/p>\n

The market is offering a free profit to anyone who will sell a gold bar and buy an April contract. \u00a0For whatever reason, no one is either able or willing to take the bait. \u00a0This is proof that the market for physical gold metal is drying up. \u00a0Speculators in the futures markets may believe that the gold price \u201cshould\u201d fall because the central banks say they are not going to competitively devalue their irredeemable paper currencies. \u00a0Owners of real metal are increasingly reluctant to part with it at the current price.<\/p>\n

We don\u2019t recommend that anyone ever naked short the monetary metals. Instead, we always advise to use an arbitrage position such as long gold \/ short silver.<\/p>\n

Using the basis theory, we have been bearish on silver this year, against the consensus posting two videos (here<\/a> and here<\/a>).<\/p>\n

Using the basis theory on gold today, we would suggest that now is a great time and a great price to buy gold.<\/p>\n

And to those who may be shorting gold due to downward momentum, we would say this. \u00a0Caveat venditor<\/em>.<\/p>\n

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Since late January, the February gold contract has been in backwardation.  This means that one could make a profit by simultaneously selling a gold bar and buying a February contract.  One would still have one’s gold plus a little extra.  I coined the term “temporary backwardation<\/a>”, to describe this curious and very recent phenomenon.  In our “new normal”, most gold and silver contracts go into backwardation as they get close to expiry.<\/p>\n

When the Feb contract first jumped into backwardation, it was well within the “contract roll” period.  The roll is when naked longs sell the expiring contract and buy a contract for a more distant month.  This heavy selling of the expiring contract pushes down its price.  Since cobasis is Spot minus Future (oversimplified slightly), the cobasis rises purely due to the mechanics of this selling.<\/p>\n

But today something more serious occurred.  The April contract, which is not yet being  “rolled”, fell into backwardation.  See the chart.<\/p>\n

\"This<\/p>\n

The market is offering a free profit to anyone who will sell a gold bar and buy an April contract.  For whatever reason, no one is either able or willing to take the bait.  This is proof that the market for physical gold metal is drying up.  Speculators in the futures markets may believe that the gold price “should” fall because the central banks say they are not going to competitively devalue their irredeemable paper currencies.  Owners of real metal are increasingly reluctant to part with it at the current price.<\/p>\n

We don’t recommend that anyone ever naked short the monetary metals.   Instead, we always advise to use an arbitrage position such as long gold \/ short silver.<\/p>\n

Using the basis theory, we have been bearish on silver this year, against the consensus posting two videos (here<\/a> and here<\/a>).<\/p>\n

Using the basis theory on gold today, we would suggest that now is a great time and a great price to buy gold.<\/p>\n

And to those who may be shorting gold due to downward momentum, we would say this.  Caveat venditor<\/em>.<\/p>\n

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