A Picture of Gold Availability Update

The December gold future went into backwardation today, July 31.

Below, we show the dates when previous gold contracts went into backwardation. As you can see, it is creeping farther and farther out.

This is a picture of gold availability to the market drying up.

– Apr first backwardated Feb 15, 30 trading days before April 1
– Jun first backwardated Apr 4, 42 trading days before June 1
– Aug first backwardated May 16, 55 trading days before Aug 1
– Oct first backwardated Jul 8, 61 trading days before Oct 1
– Dec first backwardated Jul 31, 67 trading days before Dec 1

11 replies
  1. MMRandy1234 says:

    Yes, it is in backwardation in the months Keith has indicated. It is not backwardated thru the full term structure, but is moving in that direction. This is all Keith is saying, and it is correct.

  2. ankursethi108 says:

    Keith

    Thank you for your articles and updates. They are very informative and I am glad I came across your site. Definitely going to keep it mind for the future when I become a high net worth individual 😉

    Any comments on this explanation of backwardation
    http://armstrongeconomics.com/2013/03/06/gold-backwardation-the-real-story/

    He seems to be saying that the arbitrage is starting to equal the return via interest rates. Since those are coming down, the returns on this futures arbitrage are as well.

    thanks,
    ankur

    • keyur1277 says:

      If armstrong was right, India should not have gold in backwardation, which it has been since some time.

      In India, Gold is on backwardation on MCX. this may be due to MCX itself being in doubt, or rupee being on run. It can not be due to low interest rates. Interest on one year CD is 9% p.a.

  3. Keith Weiner says:

    Thanks for your comments.

    thinkpeace: physical gold metal.

    ankursethi108: The gold basis (annualized rate to carry the metal) will get arbitraged down as the rate of interest falls. But that in itself does not explain why the basis goes negative (or keeps falling deeper and deeper into negative territory) nor why the cobasis goes posiitve. A low interest rate, in itself, does not cause this condition. However, as I discuss in my article on negative GOFO rates:
    GOFO = LIBOR – GLR
    A low LIBOR can go below the gold lease rate, which means GOFO goes negative. Through arbitrage, a negative GOFO can drive COMEX futures into backwardation. There are many pieces to this, and the system is complicated, but at the end of the day negative GOFO and positive cobasis are symptoms of the same phenomenon: the rot of the monetary system. In the end stages of central planning, we see the collapse or inversion of spreads, and the withdrawal of the gold bid on the dollar. And why should gold bid on the dollar? What does a gold owner get in doing so? One month LIBOR is 0.19%, and still falling.

    • Keith Weiner says:

      JR: Hoarding and dishoarding are direct exchanges of wealth and income. Lending is an indirect exchange. Just as indirect trade (using money) is much more efficient than direct (barter), the same is true with lending vs. hoarding.

      The government has set up a conflict. Lending at interest is superior to hoarding at no interest. But they have increasingly corrupted the dollar to the point where lending is less and less attractive.

      • JR says:

        Your interest is in the same corrupted $ as you receive (then lend again), for ‘loaning’ your gold. How can this be superior to hoarding the highest quality, so most valuable, asset of all?

        Yes you can bid for gold with your $ interest but at what rate of exchange? You have no idea at the time of the ‘loan’. I still don’t see lending gold for $ interest as rational.

        Nothing can trump quality.

        • Keith Weiner says:

          I am not a fan of keeping one’s savings in dollars… I am just offering the explanation for why people are still conflicted. In a way, they are forced to choose between two bad alternatives.

          Also, they have been trained to think in dollars. Gold is “going down”. Who would want to own something that’s going down? :-/

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