http://www.zerohedge.com/news/2013-07-09/golden-backwardation-rabbit-hole-gets-deeper-subzero-gofo-slide-accelerates
The Golden Backwardation Rabbit Hole Gets Deeper: Subzero GOFO Slide Accelerates
Yesterday we described the historic inversionin the Gold Forward Offered Rate, where the 1 and 3 Month GOFO rates sliding into negative territory for the first time since 2008 and 1999 respectively. Today, using the latest LBMA rate update, we observe that the gold backwardation is accelerating, and now the 6 Month GOFO has also joined the complex into sub-zero territory.
This is how we summarized the disturbing observation in the chart above, which as we said yesterday may be one of many things:
- An ETF-induced repricing of paper and physical gold
- Ongoing deliverable concerns and/or shortages involving one (JPM) or more Comex gold members.
- Liquidations in the paper gold market
- A shortage of physical gold for a non-bullion bank market participant
- A major fund unwinding a futures pair trade involving at least one gold leasing leg
- An ongoing bullion bank failure with or without an associated allocated gold bank "run"
- All of the above
The answer for now is unknown. What is known is that something very abnormal, and even historic, is afoot at the nexus of the gold fractional reserve lending market.
Today, the golden backwardation story goes mainstream, with the FT catching up:
The lack of liquidity in the leasing market has pushed gold forward rates, known as “gofo”, into negative territory, meaning that gold for future delivery is trading at a discount to physical market prices – a rare situation that has occurred only a few times in the past 20 years. The last time forwards were negative was in November 2008, when a scramble for physical gold spurred a sharp price rally.Traders said that investors were alert for the possibility that the current tightness could trigger a squeeze among hedge funds with short positions in gold, potentially driving prices higher. “It has piqued people’s interest”, said one senior precious metals banker. Gold was trading at $1,248.50 a troy ounce on Tuesday, up 5.8 per cent from a three-year low at the end last month.
Bottom line, whatever is causing the dramatic collapse in liquidity and/or collateral, it is certainly not letting up.
http://harveyorgan.blogspot.com/2013/07/july-92013gld-drops-another-7-tonnes-to.html
( What is going on at the JP Morgan vaults ? )
Tuesday, July 9, 2013
July 9.2013/GLD drops another 7 tonnes to 939.75 tonnes/total comex gold inventory drops again/Gold goes into backwardation from 1- 6 months out/
Good evening Ladies and Gentlemen:
Gold closed up $11.00 to $1245.90 (comex closing time ). Silver is up by only 10 cents to $19.12 (comex closing time)
In the access market at 5:00 pm, gold and silver finished trading at the following prices :
gold: $1250.70
silver: $19.26
Today, we did not have our raid as unexpectedly gold went into backwardation late last night as the GOFO rate ( one and three months out) went negative. Late in the day, the GOFO went negative for 6 months out. There is no doubt some stress in the delivery process and it is manifesting itself in backwardation of gold.
Today, we did not have our raid as unexpectedly gold went into backwardation late last night as the GOFO rate ( one and three months out) went negative. Late in the day, the GOFO went negative for 6 months out. There is no doubt some stress in the delivery process and it is manifesting itself in backwardation of gold.
At the Comex, the open interest in silver fell by 953 contracts to 135,394.
The open interest on the entire gold comex contracts rose by 894 contracts to 429,854 with gold's rise in price by $22.00 on Monday. No doubt we had new speculators enter the arena on the short side and the commercials continued to cover. Their aim to become net long in gold.
Tonight, the Comex registered or dealer inventory of gold falls to 1.142 million oz or 35.52 tonnes. This is dangerously low. The total of all gold at the comex (dealer and customer) falls again and registers a reading of 7.202 million oz or 224.0 tonnes of gold.
JPMorgan's customer inventory remains constant at 136,380.609 oz or 4.24 tonnes. It's dealer inventory also remains constant at 401,877.493 oz but it still must settle upon contracts issued in the June delivery month which far exceeds its inventory.
The total of the 3 major gold bullion dealers( Scotia , HSBC and JPMorgan) in its Comex gold dealer account registers only 26.03 tonnes of gold.
JPMorgan's customer inventory is now at a extremely low 136.38 million oz or 4.24 tonnes of gold.
The GLD reported another loss in inventory tonight to the tune of 7.21 tonnes with an inventory reading of 939.75 tonnes. The SLV inventory of silver showed a loss in silver inventory of 530,000 ounces. The game will end when the GLD runs out of physical metal.
On the paper side of things, we have commentaries from Ambrose Evans Pritchard on France and Charles Gave on where we stand right now with respect to the global economy.
We will go over these and many other stories today, but first......
Let us now head over to the comex and assess trading over there today.
Here are the details:
The total gold comex open interest surprisingly rose by 894 contracts from 428,960 up to 429,854 with gold rising in price by $22.00 on Monday. No doubt we had more specs enter the short side and commercials were continually covering. The large specs are slowly being let to the slaughterhouse. We are now into the the non active July contract and here the OI rests at 103 up 10 contracts . We had 0 delivery notice filed on Monday so in essence we gained 10 contracts or an additional 1000 oz gold will stand for the July delivery month. The next active delivery month for gold is August and here the OI fell by 10,608 contracts from 216,378 down to 215,775 as we are now 3 weeks away from first day notice for the August contract month. The estimated volume today was fair at 165,745 contracts. The confirmed volume on Monday was good at 177,183.
The total silver Comex OI fell by 953 contracts with silver rising in price on Monday by 22 cents. The total of all comex silver OI stands at 135,394 contracts. We are now into the big delivery month of July and here the OI fell by 22 contracts down to 1458. We had 17 notices filed on Monday so in essence we lost 5 contracts or 25,000 oz. The next big delivery month is September and here the OI fell by 899 contracts down to 80,150. The estimated volume today was anemic coming in at only 31,408 contracts. The confirmed volume on Monday was also poor at 34,618.
Comex gold/May contract month:
July 9/2013
the July contract month
the July contract month
Ounces
| |
Withdrawals from Dealers Inventory in oz
|
23,219.27 oz (Brinks)
|
Withdrawals from Customer Inventory in oz
|
128,326.61 (HSBC,Scotia)
|
Deposits to the Dealer Inventory in oz
|
nil
|
Deposits to the Customer Inventory, in oz
| 55,870.091 (Brinks, HSBC,Scotia) |
No of oz served (contracts) today
|
2 ( 200 oz)
|
No of oz to be served (notices)
|
101 (10,100 oz)
|
Total monthly oz gold served (contracts) so far this month
|
80 (8,000 oz)
|
Total accumulative withdrawal of gold from the Dealers inventory this month
|
173,482.88 oz
|
Total accumulative withdrawal of gold from the Customer inventory this month
| 285,319.02 oz |
We had huge activity at the gold vaults
The dealer had 0 deposits but did have 1 withdrawal.
i) from the dealer Brinks: 23,219.27 oz (no doubt to settle on issuance from Brinks dealer)
total dealer withdrawal: 23,219.27 oz
i) from the dealer Brinks: 23,219.27 oz (no doubt to settle on issuance from Brinks dealer)
total dealer withdrawal: 23,219.27 oz
We had 2 customer deposits today :
i) Into HSBC; 31,847.44 oz
ii) Into Scotia: 23,218.901 oz
total customer deposits: 55.870.091 oz
we had 2 customer withdrawals
i) Out of HSBC: 32,139.82 oz (as soon as 31,847.44 oz was deposited, 32,139.82 oz were removed)
ii) Out of Scotia: 96,186.79 oz
Customer withdrawals: 128,326.61 oz
my goodness, folks are in a hurry to remove gold from registered comex vaults.
Today we had 0 adjustments
Thus tonight we have the following JPMorgan gold inventory which remains constant: (same as Monday's level)
JPM dealer inventory: 401,877.493 oz 12.50 tonnes
JPM customer inventory: 136,380.609 oz or 4.24 tonnes
As we reported to you 5 weeks ago, that JPMorgan withdrew a huge amount of gold from its customer account:
Out of JPMorgan: 217,844.96 oz.
If you will recall, we needed to see 100,000 oz of gold removed from JPMorgan's customer account. (1000 contracts served upon our longs in mid May).
The last Tuesday in May (May 28), we had 15,416.93 oz removed from the JPM's customer account. No doubt that this gold was part of the 1000 contracts issued by JPMorgan customer account and thus we calculated that as of tonight 28,389.579 oz was settled upon, leaving 71,611.00 oz still left to arrive in the settling process.
Tuesday, June 11, we had 217,844.96 actual ounces leave JPMorgan
and on, June 28.2013 we had 4,817.251 oz leave jPMorgan customer account
and on Friday July 5.2013: we had 6,831.54 oz leave jPMorgan customer account
Summary for the last week of issuance from JPMorgan:
On Friday, June 28th we had 23 notices filed and all of these were issued by JPMorgan on the customer side.
Tuesday we had 24 contracts were issued and all from the dealer or house account.
Thursday, 20 contracts were issued and all from JPMorgan's dealer or house account.
Friday,we had 10 contracts were issued and all from JPMorgan's dealer or house account.
In summary on the customer side of things for JPMorgan:
On Friday, the 28th of June, I reported that we had from the beginning of June, 2543 notices or 254,300 oz issued. If we add the 71,611.00 oz owing from May issuance, we get 325,911 oz. If we subtract the actual withdrawal of gold from JPMorgan of 229,493.75 (which includes Friday's withdrawal customer side 6,831.54), this still leaves 96,417.25 oz that needs to be settled upon from the vaults of JPMorgan customer side.
The total dealer comex gold lowers again and it rests tonight at 1.142 million oz or 35.52 tonnes of gold.The total of all comex gold, dealer and customer falls again tonight to 7.202 million oz or 224.0 tonnes.
Now for JPMorgan's dealer side and what the inventory should be:
On June 11.2013 we reported that 4935 contracts have been issued by JPMorgan's house account(dealer account) since first day notice and not yet subtracted out of inventory.
Tuesday, July 2: 24 contracts (notices) were issued by JPMorgan's dealer or house account.
Wednesday: July 3: 20 contracts were issued by JPMorgan's dealer or house account.
Friday: July 5: 10 contracts were issued byJPMorgan's dealer our house account.
You will also recall 4 weeks ago on Saturday (and again on that following Monday night,) I reported that JPMorgan had 470,322.102 oz in it's dealer account. From that day until now, 68,444.61 oz was either withdrawn or adjusted out(on the dealer side), leaving the dealer side at 401,877.493 oz where it sits tonight.
On the dealer side here are the last 22 trading sessions as to notices issued from JPMorgan's dealer side:
Friday: zero
Monday: 1
Tuesday: 0
Wednesday : 0
Wednesday : 0
Thursday: 0
Friday: 0
Monday: 0 .
Tuesday: 0
Wednesday: 0
Thursday: 0
Friday: 0
Monday:0
Tuesday: 0
Wednesday: 0
Thursday:0
Friday: 0
Monday: 0
Tuesday: 24
Wednesday: 20
Thursday/Friday: 10
Monday: 0
Tuesday: 0
Thus, 5000 notices have been issued by JPMorgan (dealer side) for the month of June and the beginning of July for 500,000 oz and these ounces have yet to settle from JPMorgan's dealer side.
JPMorgan's dealer vault registers tonight 401,877.493 oz.
Somehow we have a huge negative balance as i) the gold has not left JPMorgan's dealer account and has yet to settle
and
ii) it is now deficient by 98,122.51 oz (401,877.493 inventory - 500,000 oz issued = -98,122.51 oz)
In other words, the entire 401,877.493 oz must be first transferred out of Morgan's dealer category ( in the same format as in the customer category) leaving it with zero, plus the 98,122.51 of additional deficient gold
JPMorgan has not had any deposits in gold in quite some time. As a matter of fact, zero ounces has entered on the dealer side from the beginning of 2013.
How will JPMorgan satisfy this shortfall??
Friday: 0
Monday: 0 .
Tuesday: 0
Wednesday: 0
Thursday: 0
Friday: 0
Monday:0
Tuesday: 0
Wednesday: 0
Thursday:0
Friday: 0
Monday: 0
Tuesday: 24
Wednesday: 20
Thursday/Friday: 10
Monday: 0
Tuesday: 0
Thus, 5000 notices have been issued by JPMorgan (dealer side) for the month of June and the beginning of July for 500,000 oz and these ounces have yet to settle from JPMorgan's dealer side.
JPMorgan's dealer vault registers tonight 401,877.493 oz.
Somehow we have a huge negative balance as i) the gold has not left JPMorgan's dealer account and has yet to settle
and
ii) it is now deficient by 98,122.51 oz (401,877.493 inventory - 500,000 oz issued = -98,122.51 oz)
In other words, the entire 401,877.493 oz must be first transferred out of Morgan's dealer category ( in the same format as in the customer category) leaving it with zero, plus the 98,122.51 of additional deficient gold
JPMorgan has not had any deposits in gold in quite some time. As a matter of fact, zero ounces has entered on the dealer side from the beginning of 2013.
How will JPMorgan satisfy this shortfall??
Another disturbing piece of news is the low dealer gold inventory for our 3 major bullion banks(Scotia, HSBC and JPMorgan). Their dealer gold remains at 26.03 tonnes tonight
i) Scotia: 199,044,026 oz or 6.19 tonnes (prev 7.204 tonnes)
ii) HSBC: 236,168.152 oz or 7.34 tonnes
iii) JPMorgan: 401,877.493 oz or 12.50 tonnes
total: 26.03 tonnes
Brinks dealer account which did have the lions share of the dealer gold falls again tonight after falling badly Friday night to 290,982.71 oz or 9.05 tonnes (from 9.77 tonnes yesterday and over 13 tonnes on Friday)
Today we had 2 notices served upon our longs for 200 oz of gold. In order to calculate what I believe will stand for delivery in July, I take the OI for July (103) and subtract out today's notices (2) which leaves us with 101 notices still left to be served upon our longs.
Thus we have the following gold ounces standing for metal:
80 contracts served x 100 oz = 8,000 oz, + 101 contracts left to be served upon x 100 oz = 10,100 oz to give us 18,100 oz or .5629 tonnes of gold. We gained 1000 additional gold ounces standing for July.
Ladies and Gentlemen: we have a three-fold problem:
i) the total dealer inventory of gold falls to a very dangerously low level of only 35.52 tonnes and none of the 9.5 tonnes delivery notices from May and the major part of the 30.70 tonnes from June issued by JPM on its dealer side has yet to leave.
ii) a) JPMorgan's customer inventory remains at an extremely low 136,380.609 oz.
If you are a customer of JPMorgan and have your gold in its vault, I think it is best to remove it before we have another fiasco like MFGlobal.
ii b) JPMorgan's dealer account rests tonight at 401,877.493 oz. However all of this gold has been spoken for plus an additional 98,122.51 oz of deficient gold.
iii) the 3 major bullion banks have collectively only 26.03 tonnes of gold left in their dealer account.
end
now let us head over and see what is new with silver:
now let us head over and see what is new with silver:
Silver:
July 9/2013: July silver contract month:
July contract month
July contract month
| Silver |
Ounces
|
| Withdrawals from Dealers Inventory | nil |
| Withdrawals from Customer Inventory | 47,390.47 oz (Delaware,CNT,) |
| Deposits to the Dealer Inventory | nil |
| Deposits to the Customer Inventory | nil |
| No of oz served (contracts) | 211 (1,055,000 oz) |
| No of oz to be served (notices) | 1247 (6,235,000 oz) |
| Total monthly oz silver served (contracts) | 2039 (10,195,000) |
| Total accumulative withdrawal of silver from the Dealers inventory this month | 143,024.57 |
| Total accumulative withdrawal of silver from the Customer inventory this month | 890,858.03 oz |
Today, we had tiny activity inside the silver vaults.
we had 0 dealer deposits and 0 dealer withdrawals.
We had 0 customer deposits:
total customer deposit: nil oz
We had 2 customer withdrawals:
We had 0 customer deposits:
total customer deposit: nil oz
We had 2 customer withdrawals:
i) Out of CNT; 40,440.47 CNT oz
ii) Out of Delaware: 6950.000 oz ( a little suspicious)
total customer withdrawal : 47,390.47 oz
we had 1 adjustments today
i) Out of Scotia: 501,645.61 oz was adjusted out of the customer and this landed into the dealer account of Scotia
Thus we have the following:
i) Out of Scotia: 501,645.61 oz was adjusted out of the customer and this landed into the dealer account of Scotia
Thus we have the following:
Registered silver at : 47.352 million oz
total of all silver: 165.557 million oz.
The CME reported that we had 211 notices filed for 1,055,000 oz today.
To calculate what will stand for this active delivery month of July, I take the number of contracts served thus far this month at 2039 x 5,000 oz per contract = 10,195,000 oz + 1247 notices left to be served upon our longs x 5000 oz per contract = 6,235,000 to give us a total of 16,430,000 oz
we lost 5 contracts or 25,000 oz will not stand for silver this month.
we lost 5 contracts or 25,000 oz will not stand for silver this month.
Thus here are the standings:
2039 contracts served x 5000 oz per contract (served) or 10,195,000 oz + 1247 notices x 5,000 oz or 6,235,000 = 16,430,000 oz
end
The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.
Now let us check on gold inventories at the GLD first:
July 9.2013: we lost another huge 7.21 tonnes of gold
TOTAL GOLD IN TRUST
Tonnes939.75
Ounces30,213,793.99
Value US$37.911 billion
July 8.2013: (we lost an astronomical 15.03 tonnes of gold)
Tonnes946.96
Ounces30,445,700.80
Value US$37.586 billion
July 5.2013: we lost 2.7 tonnes
Tonnes961.99
Ounces30,928,840.80
Value US$37.488 billion
* * *
Selected news and views.....
Bill Holter is immediately onto the story of backwardation of gold:
(courtesy Bill Holter/Miles Franklin)
Bill Holter is immediately onto the story of backwardation of gold:
(courtesy Bill Holter/Miles Franklin)
(courtesy Bill Holter/Miles Franklin)
Is there anything else necessary.
....to create a short squeeze of epic proportions in the Gold market? Yesterday we saw that Gold went into backwardation on the LBMA
http://www.zerohedge.com/news/
It is important to understand that Gold should never ever go into backwardation unless something is really wrong. Gold "is" money and "future" money should ALWAYS carry interest with it. When Gold for delivery today cost's more than Gold for delivery in the future, it carries with it "negative interest". This phenomena can happen in other commodities if there is a shortage, since Gold has been mined for 5,000 years and vaulted, no shortage can occur...unless the price is too low to coax it out onto the market. I have written many times that this was the case, the price of Gold is too low which creates excess demand and inhibits supply, the current backwardation may be validating this view.
OR another explanation is that investors have finally figured out that the jig (rig) is up. Let me explain, if investors want Gold now, today, it is worth paying more (interest upfront) to get it. Maybe investors are afraid that at a later date they will not receive delivery? Maybe the message has finally gotten out to enough investors that the whole game is that of "fractional reserve" and just because you have a piece of paper that says that you own Gold...maybe you really don't. If I had to guess, yes shortages have something to do with it but the driving force behind the current backwardation is a lack of "trust". "Trust" that you will receive your metal at a future contracted date...so you buy it now and get it delivered now...while you know that you still can.
So we now have the theoretically impossible (in a perfect world) backwardation of Gold. We also have speculators more short the Gold market than ever before. The commercials look to be at least flat and maybe even now long which would be the first time in 20 years or more. Inventories are depleting as evidenced by the ABN Amro default, COMEX inventory depletion and GLD bleeding Gold like it's jugular vein has been slit. We also know that supply will surely contract as the Gold price is now below the cost of production for many miners.
Along with the above, we have seen demand for Gold surge in every language spoken on the planet. We also know that China has been hoarding Gold and inking trade deals all over the world which excludes settlement in Dollars, others have followed which will cut demand for Dollars. Yes, yes, of course we also have a Fed which is oversupplying Dollars and a Treasury which is burying itself in debt but it has only been recently that Treasury yields have started to rise in violent fashion. As has been reported for 3+ months now, there is also a shortage of Gold on a global basis where premiums (backwardation in itself) have been asked for and paid for to receive metal along with slower and slower delivery times. To top this off, worldwide, refineries have been running 24/7 to keep up with the demand.
On the sentiment front, could anything be worse than the sentiment amongst Western Gold investors? CNBC, Bloomberg and your friendly neighborhood stockbroker have backed up the price suppression by telling anyone willing to listen as to how scary and what a bad investment Gold is...foreigners know better and are not listening. My point is that were a short squeeze to have already started and kick quickly into high gear it would take Westerners by total surprise. For Westerners a rapid rise from here would be viewed as a short squeeze, for Easterners if would merely be an extension of a buying panic. From whichever view, the result will be the same, MUCH higher Gold (and Silver) prices.
If I were to write a playbook for how and why Gold was revalued higher I could not put together a better scenario than we have right now. Everything is in place, EVERYTHING! Supply constraints, increasing demand from both the fear and greed sides, a financial system that is not mathematically viable and showing signs of failure, currency wars between nations and now the "I want it and I want it in my hand NOW" syndrome.
I will finish by saying that in my opinion the price of Gold should never have gotten even close to current levels. Rightly or wrongly they did, but we now have evidence that "current prices" will not stand for long. The marketplace itself is telling you that something is very wrong and expressing this in price action. Do we know "what" exactly is wrong? Maybe, maybe not but we do have some clues, the important thing is that you listen to what the market is telling you...the price is not right! Regards, Bill H.
end
Dave from Denver on GOFO…
GOFO (Gold Forward) is negative out to three months: (scroll down the page to see today's GOFO rates)http://www.lbma.org.uk/pages/index.cfm?page_id=55&title=gold_forwards&show=2013
The GOFO is the interest rate that you would pay to borrow dollars and use gold as collateral for the loan. Obviously with collateral like gold, the interest rate you pay to borrow dollars would be lower than if you were borrowing the dollars unsecured. If the GOFO is negative, it means that someone is willing to lend you dollars AND pay you interest in exchange for use of your gold as collateral. It's really someone borrowing your gold with interest and putting up dollars as collateral.
The only reason this would occur is if someone desperately needs to get their hands on gold but thinks they'll be able to return it within the time frame of the loan - out to three months in this case. A negative rate out to three months tells us that there's a big delivery shortage and bullion banks are willing to pay an interest rate to borrow gold and put up dollars as collateral. It also tells us that gold today is worth more than gold re-delivered out to three months.
Bill, we were chatting about the drain on Comex gold and I suggested that maybe JPM/HSBC/Scotia was using the 100 oz bars in their vault and swapping them for 400 oz bars - i.e. they needed to get their hands on 400 oz bars, for whatever reason. Perhaps they're using the 100 oz. bars to get ahold of 400 oz. bars in order to return the 400 oz bars to whomever they did a gold/dollar swap with. Or they are returning leased gold for which the lessor is demanding its return (think: Bundesbank).
That's just one possibility, but any way you add it up, there's a serious shortage of 400 oz. bars right now.
Bill Kaye: Hong Kong recasts Western central bank gold for Asia
Submitted by cpowell on Tue, 2013-07-09 17:40. Section: Daily Dispatches
1:41p ET Tuesday, July 9, 2013
Dear Friend of GATA and Gold:
Gold leased from Western central banks and carrying their hallmarks is entering Hong Kong for melting, refining, and recasting into gold for the People's Bank of China and other Asian buyers, Hong Kong fund manager William Kaye tells King World News today.
Gold leasing, Kaye says, has made "a farce" out of Western central bank gold reserves. "The gold is gone," he says. "It's been hypothecated and rehypothecated. It's gone. Not only do the Fed and the U.S. Treasury not own 8,000-plus tons, they probably own nothing."
An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Pat Heller: Where's the gold?
Submitted by cpowell on Tue, 2013-07-09 13:56. Section: Daily Dispatches
9:50a ET Tuesday, July 9, 2013
Dear Friend of GATA and Gold:
Writing for Coin Week, Patrick A. Heller of Liberty Coin Service in Lansing, Michigan, enumerates a few facts suggesting deceit and manipulation in the gold market. Heller's commentary is headlined "Where's the Gold?" and it's posted at Coin Week here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
http://www.silverdoctors.com/ned-naylor-leyland-gold-what-has-hasnt-happened/#more-28989
....to create a short squeeze of epic proportions in the Gold market? Yesterday we saw that Gold went into backwardation on the LBMA
http://www.zerohedge.com/news/
It is important to understand that Gold should never ever go into backwardation unless something is really wrong. Gold "is" money and "future" money should ALWAYS carry interest with it. When Gold for delivery today cost's more than Gold for delivery in the future, it carries with it "negative interest". This phenomena can happen in other commodities if there is a shortage, since Gold has been mined for 5,000 years and vaulted, no shortage can occur...unless the price is too low to coax it out onto the market. I have written many times that this was the case, the price of Gold is too low which creates excess demand and inhibits supply, the current backwardation may be validating this view.
OR another explanation is that investors have finally figured out that the jig (rig) is up. Let me explain, if investors want Gold now, today, it is worth paying more (interest upfront) to get it. Maybe investors are afraid that at a later date they will not receive delivery? Maybe the message has finally gotten out to enough investors that the whole game is that of "fractional reserve" and just because you have a piece of paper that says that you own Gold...maybe you really don't. If I had to guess, yes shortages have something to do with it but the driving force behind the current backwardation is a lack of "trust". "Trust" that you will receive your metal at a future contracted date...so you buy it now and get it delivered now...while you know that you still can.
So we now have the theoretically impossible (in a perfect world) backwardation of Gold. We also have speculators more short the Gold market than ever before. The commercials look to be at least flat and maybe even now long which would be the first time in 20 years or more. Inventories are depleting as evidenced by the ABN Amro default, COMEX inventory depletion and GLD bleeding Gold like it's jugular vein has been slit. We also know that supply will surely contract as the Gold price is now below the cost of production for many miners.
Along with the above, we have seen demand for Gold surge in every language spoken on the planet. We also know that China has been hoarding Gold and inking trade deals all over the world which excludes settlement in Dollars, others have followed which will cut demand for Dollars. Yes, yes, of course we also have a Fed which is oversupplying Dollars and a Treasury which is burying itself in debt but it has only been recently that Treasury yields have started to rise in violent fashion. As has been reported for 3+ months now, there is also a shortage of Gold on a global basis where premiums (backwardation in itself) have been asked for and paid for to receive metal along with slower and slower delivery times. To top this off, worldwide, refineries have been running 24/7 to keep up with the demand.
On the sentiment front, could anything be worse than the sentiment amongst Western Gold investors? CNBC, Bloomberg and your friendly neighborhood stockbroker have backed up the price suppression by telling anyone willing to listen as to how scary and what a bad investment Gold is...foreigners know better and are not listening. My point is that were a short squeeze to have already started and kick quickly into high gear it would take Westerners by total surprise. For Westerners a rapid rise from here would be viewed as a short squeeze, for Easterners if would merely be an extension of a buying panic. From whichever view, the result will be the same, MUCH higher Gold (and Silver) prices.
If I were to write a playbook for how and why Gold was revalued higher I could not put together a better scenario than we have right now. Everything is in place, EVERYTHING! Supply constraints, increasing demand from both the fear and greed sides, a financial system that is not mathematically viable and showing signs of failure, currency wars between nations and now the "I want it and I want it in my hand NOW" syndrome.
I will finish by saying that in my opinion the price of Gold should never have gotten even close to current levels. Rightly or wrongly they did, but we now have evidence that "current prices" will not stand for long. The marketplace itself is telling you that something is very wrong and expressing this in price action. Do we know "what" exactly is wrong? Maybe, maybe not but we do have some clues, the important thing is that you listen to what the market is telling you...the price is not right! Regards, Bill H.
end
end
Dave from Denver on GOFO…
GOFO (Gold Forward) is negative out to three months: (scroll down the page to see today's GOFO rates)http://www.lbma.org.uk/pages/index.cfm?page_id=55&title=gold_forwards&show=2013
The GOFO is the interest rate that you would pay to borrow dollars and use gold as collateral for the loan. Obviously with collateral like gold, the interest rate you pay to borrow dollars would be lower than if you were borrowing the dollars unsecured. If the GOFO is negative, it means that someone is willing to lend you dollars AND pay you interest in exchange for use of your gold as collateral. It's really someone borrowing your gold with interest and putting up dollars as collateral.
The only reason this would occur is if someone desperately needs to get their hands on gold but thinks they'll be able to return it within the time frame of the loan - out to three months in this case. A negative rate out to three months tells us that there's a big delivery shortage and bullion banks are willing to pay an interest rate to borrow gold and put up dollars as collateral. It also tells us that gold today is worth more than gold re-delivered out to three months.
Bill, we were chatting about the drain on Comex gold and I suggested that maybe JPM/HSBC/Scotia was using the 100 oz bars in their vault and swapping them for 400 oz bars - i.e. they needed to get their hands on 400 oz bars, for whatever reason. Perhaps they're using the 100 oz. bars to get ahold of 400 oz. bars in order to return the 400 oz bars to whomever they did a gold/dollar swap with. Or they are returning leased gold for which the lessor is demanding its return (think: Bundesbank).
That's just one possibility, but any way you add it up, there's a serious shortage of 400 oz. bars right now.
GOFO (Gold Forward) is negative out to three months: (scroll down the page to see today's GOFO rates)http://www.lbma.org.uk/pages/index.cfm?page_id=55&title=gold_forwards&show=2013
The GOFO is the interest rate that you would pay to borrow dollars and use gold as collateral for the loan. Obviously with collateral like gold, the interest rate you pay to borrow dollars would be lower than if you were borrowing the dollars unsecured. If the GOFO is negative, it means that someone is willing to lend you dollars AND pay you interest in exchange for use of your gold as collateral. It's really someone borrowing your gold with interest and putting up dollars as collateral.
The only reason this would occur is if someone desperately needs to get their hands on gold but thinks they'll be able to return it within the time frame of the loan - out to three months in this case. A negative rate out to three months tells us that there's a big delivery shortage and bullion banks are willing to pay an interest rate to borrow gold and put up dollars as collateral. It also tells us that gold today is worth more than gold re-delivered out to three months.
Bill, we were chatting about the drain on Comex gold and I suggested that maybe JPM/HSBC/Scotia was using the 100 oz bars in their vault and swapping them for 400 oz bars - i.e. they needed to get their hands on 400 oz bars, for whatever reason. Perhaps they're using the 100 oz. bars to get ahold of 400 oz. bars in order to return the 400 oz bars to whomever they did a gold/dollar swap with. Or they are returning leased gold for which the lessor is demanding its return (think: Bundesbank).
That's just one possibility, but any way you add it up, there's a serious shortage of 400 oz. bars right now.
Bill Kaye: Hong Kong recasts Western central bank gold for Asia
Submitted by cpowell on Tue, 2013-07-09 17:40. Section: Daily Dispatches
1:41p ET Tuesday, July 9, 2013
Dear Friend of GATA and Gold:
Gold leased from Western central banks and carrying their hallmarks is entering Hong Kong for melting, refining, and recasting into gold for the People's Bank of China and other Asian buyers, Hong Kong fund manager William Kaye tells King World News today.
Gold leasing, Kaye says, has made "a farce" out of Western central bank gold reserves. "The gold is gone," he says. "It's been hypothecated and rehypothecated. It's gone. Not only do the Fed and the U.S. Treasury not own 8,000-plus tons, they probably own nothing."
An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Pat Heller: Where's the gold?
Submitted by cpowell on Tue, 2013-07-09 13:56. Section: Daily Dispatches
9:50a ET Tuesday, July 9, 2013
Dear Friend of GATA and Gold:
Writing for Coin Week, Patrick A. Heller of Liberty Coin Service in Lansing, Michigan, enumerates a few facts suggesting deceit and manipulation in the gold market. Heller's commentary is headlined "Where's the Gold?" and it's posted at Coin Week here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
http://www.silverdoctors.com/ned-naylor-leyland-gold-what-has-hasnt-happened/#more-28989
Submitted by cpowell on Tue, 2013-07-09 17:40. Section: Daily Dispatches
1:41p ET Tuesday, July 9, 2013
Dear Friend of GATA and Gold:
Gold leased from Western central banks and carrying their hallmarks is entering Hong Kong for melting, refining, and recasting into gold for the People's Bank of China and other Asian buyers, Hong Kong fund manager William Kaye tells King World News today.
Gold leasing, Kaye says, has made "a farce" out of Western central bank gold reserves. "The gold is gone," he says. "It's been hypothecated and rehypothecated. It's gone. Not only do the Fed and the U.S. Treasury not own 8,000-plus tons, they probably own nothing."
An excerpt from the interview is posted at the King World News blog here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Gold Anti-Trust Action Committee Inc.
Pat Heller: Where's the gold?
Submitted by cpowell on Tue, 2013-07-09 13:56. Section: Daily Dispatches
9:50a ET Tuesday, July 9, 2013
Dear Friend of GATA and Gold:
Writing for Coin Week, Patrick A. Heller of Liberty Coin Service in Lansing, Michigan, enumerates a few facts suggesting deceit and manipulation in the gold market. Heller's commentary is headlined "Where's the Gold?" and it's posted at Coin Week here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
http://www.silverdoctors.com/ned-naylor-leyland-gold-what-has-hasnt-happened/#more-28989
Submitted by cpowell on Tue, 2013-07-09 13:56. Section: Daily Dispatches
9:50a ET Tuesday, July 9, 2013
Dear Friend of GATA and Gold:
Writing for Coin Week, Patrick A. Heller of Liberty Coin Service in Lansing, Michigan, enumerates a few facts suggesting deceit and manipulation in the gold market. Heller's commentary is headlined "Where's the Gold?" and it's posted at Coin Week here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Gold Anti-Trust Action Committee Inc.
http://www.silverdoctors.com/ned-naylor-leyland-gold-what-has-hasnt-happened/#more-28989
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