Gold - Ready to move??

U

Ulan Bator

Member
Nov 5, 2004
305
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I've noticed something interesting in the gold market.

Normally, with commodities, you have something called 'Contango' which simply means that a price for something for immediate delivery (the 'spot' price) is usually a few bucks cheaper to buy than for the same commodity for delivery, say, two months from now (the 'futures' price).

In a normal market, the 'spot price' will be cheaper because storing something for delivery two months from now means extra costs per ounce for warehousing and insurance. If X sells for $500.00 per ounce for immediate delivery, it could sell for $507.00 per ounce if you want to buy it now but not have it delivered for another two months.

As of Friday, December 5, however, something very rare and unusual happened. 'Spot' gold for immediate delivery closed at around $754.00/oz. Gold for delivery in February closed at around $752.00/oz which means that gold is now in what is called 'Backwardation' which simply means the normal relationships among the prices for various delivery dates is now in a backward or reversed state.

What's the big deal, you ask? Well, it generally means that people or institutions that want gold want it NOW and are willing to pay extra for it. They don't want it at a later date because they may be concerned that it MAY NOT BE AVAILABLE! Backwardation almost always signals 'SHORTAGE!' and usually is a pretty good predictor of future price moves.

I'm not an expert and you must always use due diligence! This is not investment advice but simply an observation. It is my belief that we are about to see an explosive move upward in gold. The Backwardation we see is also a shot across the bow for the US dollar which usually moves opposite to gold. It may be signalling an imminent collapse of the US dollar and/or the American financial system.

Keep an eye on this phenomena. Prices may right themselves in the next few days or weeks and the normal relationships resume. If not, we could see some interesting developments in gold and the US dollar in the not-to-distant future. :cool:
 
Excellent post:) . I will check it out. I remember watching BNN and they had this big-shot money manager on "market call."


A caller asked him what he thought the price of Gold was going to be short term. The Money manager says "beats me" I have never understood the price dynamics of Gold--lol.


Ulan, maybe you should apply to go on BNN. Your explanation sounds better than most of the experts!
 
Can’t buy gold at store outlets any longer because of all these guys running around buying it up, preparing for the coming apocalypse. Many are predicting gold to go to $2000/oz in the near future for different reasons.

Like condos, when you see people lining up to buy, it is time to sell. I think gold is going in the same direction as oil and other metals went. My prediction is in the $600/oz range in the next 2-3 weeks. Maybe $550 in some months.
 
Nice explanation of contango and backwardation.

I would be weary...right now the market is unstable and there's a lot of speculation. Gold, usually, is in a contango state due to risk of rising prices. The backwardation you see could be temporary due to gold producers being sceptical of future prices and therefore shorting gold futures and locking in rates and producers are probably bearish on precious metals as a whole.
 
Thanks for the feedback. It's important to have different points of view. That's what makes markets after all.

One thing I also find interesting is a chart of the U.S. dollar index for December. Looks like the US buck is struggling at the 88 level. Is it topping out? Maybe. A drop from here would be logical.

I'm also very much convinced that the Federal Reserve through its surrogates (ie. J.P. Morgan) has been actively and aggressively shorting gold and silver futures to keep the prices down. After all, faith in paper currency must be protected at all costs! This in spite of the fact that all around the world there is a shortage of gold and silver coins and bullion bars. If you look at the premiums being paid for these on places like Ebay, you can see for yourself. One ounce gold bullion coins are generally selling for about $900 - 1000 each.

Financial pundits say there is no shortage of both metals only the capacity of various mints to produce. To me it seems more likely that mints around the world are increasingly reluctant to increase capacity - maybe not sure if it's such a good idea to keep trading gold and silver for paper currency.
 
I too have always had a particular passion for accumulating as much gold as possible with the old school mentality that it would always "have value down the road".
5 or 6 ounces of gold is the "nest egg under the floor boards" to me and if ever in dire need, could cash it in for a decent sum.
 
I don't want to flog any dead horses here so please forgive me. I'm very passionate about this whole issue.

Never trust the Fascistic murder machine that is the US government.

They are telling you
-- inflation is currently around 4% per annum
-- unemployment is now at slightly less than 7%
-- the U.S. is now officially in recession

WHAT A CROCK OF YOU-KNOW-WHAT!!

Simply go to www.shadowstats.com for the truth about what is being hidden from the public.

The real deal
-- Inflation in the U.S. is now running at about 12% per annum
-- Unemployment is now over 16%
-- The U.S. has been in recession since 2004 with real G.D.P. at -3%

Why the lies? Many entitlement programs in the U.S. are linked to the inflation rate and adjusted accordingly each year. Since the government can't eliminate or reduce the entitlements, they fudge the numbers on which they are based, in this case, changing the way inflation is calculated in order to rip off people on, say, social security. Also, politically, if you want to get re-elected would you admit unemployment is over 16%? Hell no. Just eliminate the 'discouraged workers' who you claim have 'stopped looking for a job' in your calculations. And finally, who wants to hear the word 'recession'? Nobody. So what to do? Easy. Lie with false statistics and assorted double-speak about how good the economy is doing and how wonderful free trade is even though all your manufacturing jobs have migrated to Mexico and China.

Anyway, sorry for all this ranting. I'll stop here.
 
Gold Issues ... i'm a Venture Capatal Investor and this is how i see gold ...

Hedge funds in the Us have had to sell gold stock to recoup the losses of Oil stocks as this happens because its being dumped all at once in the market has driven the price down ... these same hedge funds will rebuy the gold stock to solidfy a better portion of there investment which in turn will drive up the price of gold ... Gold is the one of the best investments rite now .. we are seeing the biggest rise in single investors getting into the gold trading market .... this will make slot of people money if played correctly ...
 
Ulan Bator said:
I don't want to flog any dead horses here so please forgive me. I'm very passionate about this whole issue.

Never trust the Fascistic murder machine that is the US government.

They are telling you
-- inflation is currently around 4% per annum
-- unemployment is now at slightly less than 7%
-- the U.S. is now officially in recession

WHAT A CROCK OF YOU-KNOW-WHAT!!

Simply go to www.shadowstats.com for the truth about what is being hidden from the public.

The real deal
-- Inflation in the U.S. is now running at about 12% per annum
-- Unemployment is now over 16%
-- The U.S. has been in recession since 2004 with real G.D.P. at -3%

Why the lies? Many entitlement programs in the U.S. are linked to the inflation rate and adjusted accordingly each year. Since the government can't eliminate or reduce the entitlements, they fudge the numbers on which they are based, in this case, changing the way inflation is calculated in order to rip off people on, say, social security. Also, politically, if you want to get re-elected would you admit unemployment is over 16%? Hell no. Just eliminate the 'discouraged workers' who you claim have 'stopped looking for a job' in your calculations. And finally, who wants to hear the word 'recession'? Nobody. So what to do? Easy. Lie with false statistics and assorted double-speak about how good the economy is doing and how wonderful free trade is even though all your manufacturing jobs have migrated to Mexico and China.

Anyway, sorry for all this ranting. I'll stop here.
Click to expand...

I don't think you understand the meaning of a fascist government.

I'll stop right there.
 
Ulan Bator said:
I've noticed something interesting in the gold market.

Normally, with commodities, you have something called 'Contango' which simply means that a price for something for immediate delivery (the 'spot' price) is usually a few bucks cheaper to buy than for the same commodity for delivery, say, two months from now (the 'futures' price).

In a normal market, the 'spot price' will be cheaper because storing something for delivery two months from now means extra costs per ounce for warehousing and insurance. If X sells for $500.00 per ounce for immediate delivery, it could sell for $507.00 per ounce if you want to buy it now but not have it delivered for another two months.

As of Friday, December 5, however, something very rare and unusual happened. 'Spot' gold for immediate delivery closed at around $754.00/oz. Gold for delivery in February closed at around $752.00/oz which means that gold is now in what is called 'Backwardation' which simply means the normal relationships among the prices for various delivery dates is now in a backward or reversed state.

What's the big deal, you ask? Well, it generally means that people or institutions that want gold want it NOW and are willing to pay extra for it. They don't want it at a later date because they may be concerned that it MAY NOT BE AVAILABLE! Backwardation almost always signals 'SHORTAGE!' and usually is a pretty good predictor of future price moves.

I'm not an expert and you must always use due diligence! This is not investment advice but simply an observation. It is my belief that we are about to see an explosive move upward in gold. The Backwardation we see is also a shot across the bow for the US dollar which usually moves opposite to gold. It may be signalling an imminent collapse of the US dollar and/or the American financial system.

Keep an eye on this phenomena. Prices may right themselves in the next few days or weeks and the normal relationships resume. If not, we could see some interesting developments in gold and the US dollar in the not-to-distant future. :cool:
Click to expand...

I'm not sure that this backwardation truly exists. There are 2 markets that trade gold futures, These are the pit traded market and the electronic market. The COMEX exchange where gold futures are traded settles the price at the close of the trading at 5:15 PM every day, which is the time the electronic market closes. If the electronic market closes at say 762.00 at 5:15 PM and the pit market closed at 756.5 the exchange will state the closing price at 756.5, even though you could not enter the market 2 minutes before the close of the electronic market at anywhere close to the pit closing price. You are comparing the pit closing price of 1:30 pm to the cash closing price of 5:15 PM. The February gold contract on the electronic market closed at 756.00. It's confusing and I don't know why they do it this way. The gold market from a technical point of view cannot rally to new highs until the open interest starts to increase. We are at open interest levels that are less than half of the last move up to new rally highs. In the very short term gold could rally but until the open interest starts increasing gold cannot move up. A true backwardation or premium market only exists when the front months are at a higher cost than the distant months. We do not have this in the gold market at this time. According to the latest Commitments of Traders report the level of new small investors in the gold futures market at this time is at almost the lowest level of the year and is about half of the highest level of the year. So I'm not sure where Cowboy gets his information but the published information is different to what he states. No disrespect meant as Cowboy may be referring to the gold mining shares market which I am not involved in.
 
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