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overtheedge
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Gold backwardation explained

- James Turk - Goldmoney

"The duration of this backwardation is unprecedented in the 4+ decades that I have been following the gold market. Clearly, something noteworthy is happening, which I believe in turn is signalling that something significant may yet happen. "

Emphasis on, "... I believe in turn is signalling that something significant may yet happen."

Further emphasis on, "... may yet happen."

Wow, enough wiggle room left there to turn around a fully loaded super-tanker.

The simple reality is that, barring hard evidence to the contrary, backwardation and contango only reflect the optimism/pessimism of the market participants. Or as Mr Turk openly admitted, "... which I believe ... ".

The past only proves what could happen. Not what will. Correlation is not evidence, but rather a hunch.

Perhaps Mr Turk's hunch may prove up. Within a few months, we will see if the backwardation wears off or gets extended for a few more exciting episodes due to overwhelming customer demand. We do know that goods and services go where demand (and profit) is greatest. Demand is often time dependent; I want it now, not next week. Ergo, many are willing to pay the time differential premium. Keep in mind that our commodity distribution system is based upon "just in time delivery". This presents an interesting concept. You either have it just in time or you will be a day late and a dollar short. Too late is always too late.

Commented 4081 days ago

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Beginning of the headline :In an interview on 8 July in King World News I noted how gold that day had slipped into backwardation. Since then I have read a lot of commentary on various websites about backwardation, which made clear to me that this term and, more importantly, the implications to the gold price when backwardation appears are widely misunderstood. So I have prepared this brief note to explain backwardation, of which there are two types – money backwardation and commodity backwardation, and as I explain below,... Read More

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