Dr. Antal Fekete published an article recently entitled "Red Alert: Gold Backdwardation!!!" "Backwardation" means that gold to be delivered today is now being priced higher than metal to be delivered later in the COMEX futures market in New York City. Why does this occur? It's because buyers of future contracts do not believe that the metal will be available later.
With other commodities, like base metals or grain, backwardation is usually immediately arbitraged out with those holding excess physical supply. The paper market in gold (and silver, which has been in backwardation for awhile) will eventually fail as new gold supply on the market is exhausted. Central banks selling even more of their gold is probably suicide; the traders will eventually eat them alive by purchasing the 100oz bars of gold and 1000oz bars of silver and selling them to the rabid investor market in these and smaller configurations. Fekete says this foretells the eventual collapse of the dollar and other fiat currencies, and as an avid Austrian student of economics, I agree with him.
The origins of contango and backwardation are simple; futures trading really started in mankind's first grain elevators. I recommend reading these Fekete articles "The Last Contango in Washington" (2006) and "Keeping Our Eyes Peeled for the Silver and Gold Basis" (2007) as well. Decide for yourself if you agree with Fekete and me (I am just a new novice, after all!).
"Trader Dan" Norcini in his charts here says to cool my jets; the month-to-month 100-oz gold bar contracts are not quite yet in backwardation, just very, very close, but I still agree with Dr. Fekete.
According to the December 3rd Comex delivery report, there are 11,759 notices to take delivery. This represents 1.1759 million ounces of gold, while the Comex-approved warehouses hold 2.9 million ounces. Thus 40% of the total amount will have to be delivered by December 31st. Since not all the gold in the warehouses is available for delivery, Comex supply of gold falls far short of the demand at present rates. Futures markets in gold are breaking down. Paper gold is progressively being discredited...
Of course, it is too early to say whether gold has gone to permanent backwardation, or whether the condition will rectify itself (it probably will). Be that as it may, it does not matter. The fact that it has happened is the coup de grace for the regime of irredeemable currency. It will bleed to death, maybe rather slowly, even if no other hits, blows, or shocks are dealt to the system...
Gold going to permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as it has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold. I dubbed this event that has cast its long shadow forward for many a year, the last contango in Washington, contango being the name for the condition opposite to backwardation (namely, that of a positive basis), and Washington being the city where the Paper-mill of the Potomac, the Federal Reserve Board, is located. This is a tongue-in-cheek way of saying that the jig in Washington is up. The music has stopped on the players of musical chairs'. Those who have no gold in hand are out of luck. They won't get it now through the regular channels. If they want it, they will have to go to the black market.
Fekete is forecasting the death of gold and silver markets at the COMEX (affectionately nicknamed the CRIMEX). As I wrote in "My Prophecy - The Federal Reserve Will End! A Money Matrix Addendum", this is a fight that precious metal expert Jim Sinclair has been raising the rallying cry to the banners of free markets for quite some time. Just like the break-up of the gold standard in 1914, the crumbling of the gold-exchange standard* set by the Genoa Conference of 1922, in the late 1920s (British pound sterling) and the Great American Gold Theft by FDR in 1933, the fall of the London Gold Pool in 1968, and Nixon's closing of the gold window in 1971, the fight to destroy the COMEX is a major battle in what Ferdinand Lips, ex-Rothschild banker, aptly called Gold Wars in his 2001 book before he died.
[*An aside. Understanding the difference between the gold standard and gold-exchange standard is critical to understanding the Great Depression. Ben Bernanke and Lawrence Summers (newly named to the Obama team) either do not understand, or intentionally mislead others, in their writings. In brief, the gold standard involved the use of gold and silver as currencies - you bought and sold all goods and services in terms of a certain weight of gold or silver, even if you used paper money that was a receipt for the metal.
The need for governments to slaughter their own armies (oh, and those of enemy governments) and finance WWI ended the gold standard in 1914. Starting in 1922, the gold-exchange standard took two currencies - the British pound sterling (which previously WAS a pound of sterling silver) and the American dollar - and pretended they were fully exchangeable for gold. All other world currencies were then pegged and constantly revalued against these currencies. However, the FED and Bank of England massively expanded their money supply (classic Austrian inflation) without buying gold and silver to back the currency during the 1920s. They tried to pretend their currency was backed by metal, and when this fraud was revealed, it ended the gold-exchange standard.]
When the price of gold finally skyrockets, the State, of course, will most likely crack down, blame, and seek to suppress the gold "speculators." However, it is important to note that actually what will occur is NOT the price of gold skyrocketing. The grams of gold one holds in their pocket before and after this event will not change at all. Same with the dollars you own. What is actually occurring is the PLUMMET in the value of exchange of the dollar and other fiat currencies for goods and services .
For those who do not understand what I mean by this, take a look at the chart of oil priced in dollars and goldgrams on a base 100 scale from this James Turk article from 2005. Turk is the founder of goldmoney.com and the graph seeks to show relative stability of "goldgrams" as a commodity currency vs. the dollar currency in terms of oil, a key commodity. Bottom line is that even though it was delayed for a decade by market manipulation, gold, the canary in the coal mine of the world economy, will finally start sounding for all to hear.
Gold and silver, the natural and free currencies of mankind, will win the Gold War against the fiat currencies of corrupt governments. Historically speaking, supporters of Gold are undefeated. Gold has always won each battle against the users of Fiat, although pesky governments, wars, and lies have had the upper hand from time to time. No fiat currency has survived from the 19th century through the 20th century, and no fiat from the 20th will survive the beginning years of the 21st.
The latest attempt by the American corporatocracy over the past 100 years has been the most determined ever. They have tried to blank out the memory of gold from all of us, in a fit of mass brainwashing. [Of course, by writing this, part of the reason is to prove that they missed one.] Truly, it is always darkest before the dawn. Even if Fiat currencies manage to survive through 2009, through 2015, even (as unbelievable as it seems to me, but I have learned to never underestimate the FED) through the next decade, the seeds of victory for Gold have been planted and will crush or slowly suffocate Fiat.
Of course, after the worship of Fiat is brought to a nasty, brutal end, governments and central bankers will scramble to control Gold itself, whether it's FED Gold Certificates, the wicked Amero, the theft of private gold, or some other form of nonsense. For a brief moment, the world will rest on a tipping point. If it falls on the side of freedom, this will be a time to rejoice. If it falls on the side of the corporatocracy, the setback will only be temporary, but I believe it will herald a period of warring states. If you thought the Iraq and Afghanistan Wars are horrible, you will be shocked at what comes next. However, no matter. It may take a few more generations, but honest money will one day win out.
For the past 300 years or so, defenders of liberty in Western society have fought to win the separation between church and state, which still remains an American ideal based on the inherent human liberty & privilege protected by the First Amendment.
The next struggle has been well underway, some would even say from the dawn of the American republic (ie Hamilton) to separate the state from meddling in economics, trade, and business. This lack of separation has always been there, but the truth of our command economy was finally revealed to even the most clueless American this fall.
It is your author's hope that separation between the economy and the state will one day be as widespread and commonplace as the separation between church and state (which could certainly be improved too!). Will rallying cries of "Gold is Money!" and shouts for the honest, sound currencies of gold and silver once more be heard in our country?
I also looked at this issue from a US Treasury-based perspective here "The Next Bubble to Pop!"
That reminds me of one last quote:
"Gold Is Money, and Nothing Else." - JP Morgan, testifying under oath to Congress before the Pujo Commission, 1913.
My fellow Americans, I do believe the time remaining to own gold and silver so cheaply is running out.