"Gold Backwardation"

"Professor Emeritus of Mathematics Antal E. Fekete says that December 2nd marked the beginning of the end for paper currencies and wealth based on such currencies: "It is no exaggeration to say that this event will trigger a tsunami wiping out the prosperity of the world."

What's he babbling on about? Well, since at least 1972, the price of gold futures has been higher than the spot price of gold - a condition called "contango" by futures traders. But on December 2nd, for pretty much the first time ever, the futures price went below the spot price - what futures traders call "backwardation" - and has stayed there for several days.

Fekete argues that this means that gold owners are hoarding their gold and simply won't sell, because (1) they're not confident that they'll be able to buy it back in the future, and (2) they have lost all faith in paper currency. He writes: "Once entrenched, backwardation in gold means that the cancer of the dollar has reached its terminal stages. The progressively evaporating trust in the value of the irredeemable dollar can no longer be stopped. Negative basis (backwardation) means that people controlling the supply of monetary gold cannot be persuaded to part with it, regardless of the bait. These people are no speculators. They are neither Scrooges nor Shylocks. They are highly capable businessmen with a conservative frame of mind. They are determined to preserve their capital come hell or high water, for saner times, so they can re-deploy it under a saner government and a saner monetary system. Their instrument is the ownership of monetary gold. They blithely ignore the siren song promising risk-free profits. Indeed, they could sell their physical gold in the spot market and buy it back at a discount in the futures market for delivery in 30 days. In any other commodity, traders controlling supply would jump at the opportunity. The lure of risk-free profits would be irresistible. Not so in the case of gold. Owners refuse to be coaxed out of their gold holdings, however large the bait may be. Why?

Well, they don't believe that the physical gold will be there and available for delivery in 30 days' time. They don't want to be stuck with paper gold, which is useless for their purposes of capital preservation."

- http://georgewashington2.blogspot.com/