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Gold backwardation fears revisited, uh oh! by Izabella Kaminska
here is the link to the LBMA data:
http://www.lbma.org.uk/?area=stats&page=gofo/2010gofo
Readers may recall GOFO rates went negative back in November 2008 for three whole days. At the time gold bugs said the move reflected a massive shortage in the supply of gold.
The likes of Professor Antal Fekete, a pro gold-standard monetary economist, meanwhile, claimed it marked the dawn of gold backwardation and the collapse of the world’s fiat monetary system.
The reality was that with Libor sky high, and cash-calls coming at banks left, right, and centre — many banks, with bullion in their coffers, saw sense in lending out gold temporarily in return for much-needed cash. And with cash more sought after than gold in a sharply descending interest-rate environment, institutions were happy to pay counterparties to take their gold in return for cash.
Hey presto — GOFO rates went negative.
The likes of Professor Antal Fekete, a pro gold-standard monetary economist, meanwhile, claimed it marked the dawn of gold backwardation and the collapse of the world’s fiat monetary system.
The reality was that with Libor sky high, and cash-calls coming at banks left, right, and centre — many banks, with bullion in their coffers, saw sense in lending out gold temporarily in return for much-needed cash. And with cash more sought after than gold in a sharply descending interest-rate environment, institutions were happy to pay counterparties to take their gold in return for cash.
Hey presto — GOFO rates went negative.
A decline in forward rates implies one of two things: There’s either a scarcity of metal available for swap or lease transactions, or there’s heavy forward selling.
The latest Commodity Futures Trading Commission data show commercial accounts engaging in heavy selling and long liquidation. To boot, money managers have built their largest short position since August 2009 (and, if you’re a contrarian, small speculators have taken up their strongest long position in a year and a half).
Given all that, the aroma wafting from the gold market seems to be a harbinger of a sell-off. Technically, gold’s stalled now. Key support for the February COMEX contract sits at $1,120 after bulls backed off from a test of the halfway point for the contract’s December swoon. A close below that level makes the sell-off case.
Given all that, the aroma wafting from the gold market seems to be a harbinger of a sell-off. Technically, gold’s stalled now. Key support for the February COMEX contract sits at $1,120 after bulls backed off from a test of the halfway point for the contract’s December swoon. A close below that level makes the sell-off case.
In which case could the recent drop we’ve seen in gold-forward rates to 0.185 be the market catching up to the over-pricing of gold forwards in the first place? Or even the pricing-in of higher interest rates to come?
here is the link to the LBMA data:
http://www.lbma.org.uk/?area=stats&page=gofo/2010gofo
and is right far more often than he's wrong.
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