The Importance of Gold Backwardation

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6 Responses to The Importance of Gold Backwardation

  1. Keith Weiner March 12, 2013 at 3:56 am #

    By the way, silver did indeed enter backwardation today, Monday Mar 11 (the video was recorded on Sunday Mar 10).

  2. thinkpeace March 12, 2013 at 1:17 pm #

    So do you believe it’s more of a logistics-thing (slow and inefficient) and not a true decline in trust that has caused this current gold and silver backwardation?

    Insightful and though-provoking video.

    Thank you!

    • Keith Weiner March 12, 2013 at 6:25 pm #

      Logistics are part of it. But another part is that the bid on spot is much firmer than the bid or even the ask on the futures (by definition of cobasis = Spot(bid) – Future(ask)). Buyers are expressing their preference for physical metal, sellers are increasingly reluctant to sell physical metal, and the arbitrageurs in the futures market can’t overcome these forces.

      While on the one hand, a backwardation in the near month combined with contango in all out-months does not signal breakdown of trust… it is interesting to note that the near month is the one with most of the speculative buying interest. And even so, the ask on that future is below the bid in spot.

      I plan to write and/or do more video on the topic of temporary backwardation.

  3. JR March 14, 2013 at 1:19 pm #

    Sorry, the following should have been here, not several articles ago.

    Watched your latest video on gold backwardation Keith. Interesting. While I remain sceptical that the credit bubble that is the modern monetary system can be measured, at least in in $ terms, I applaud your willingness to make your ideas freely available.

    Am I right in thinking that you believe gold is in backwardation in the nearest month & not the outside months due to the sheer volume of transactions in the nearest month contract, so requiring the largest volume of gold?

    I’m assuming that the nearest month is the most ‘liquid’.

    • JR March 14, 2013 at 1:24 pm #

      Arrgh!

      So requiring the largest volume of gold that isn’t coming to market, due to a “preference for physical metal”?

  4. Sanctuary April 11, 2014 at 9:01 am #

    Thank you so much for this wonderful explanation of how the trade would be effected. Now I know that it is inexorable that backwardation will come about. I would would never trade my position in physical for 10% a year let alone some ridiculously low number that you discuss.

    I had breakfast with Dr. Fekete a couple of years ago in Arizona while at a seminar. I recognized him at breakfast and introduced myself. We had a great visit He invited me to come to see him, but I have not done so yet. I hope to make the trip soon. I never went to see Pavarotti and I still regret it. I believe thy are both in a class by themselves.—– I’m so glad you are here to train us all.

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