Jive Dadson

Four Major Developments Gold Investors Should Watch

One more thing. Backwardation in the gold market is a very different kind of event than backwardation in other markets, because there is never a real shortage or bottleneck in gold. (Most of the gold that ever was mined is available at all times.) Backwardation in gold, as occurred briefly in Nov '08 indicates an extreme distrust of the futures markets' ability to make good on the contracts they underwrite. I don't know if or when it ever happened before.

Four Major Developments Gold Investors Should Watch

Gold has not been in backwardation since Nov '08. Gold was in backwardation then for three days. That was when there were rampant rumors that the exchanges would not be able to deliver physical gold. The so-called "lease rate" has been negative for a while now. Are you possibly confusing the lease rate with the forward rate?

Silver went into backwardation when the price collapsed and demand for retail rounds and bars got very high, as recently as March of this year. That was simply a supply bottle-neck.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Check this out: [IMG]i346.photobucket.com/a...[/IMG]

The Disconnect Between Supply and Demand in Gold & Silver Markets

Lease rates for silver are occasionally quoted as slightly negative. Again, that's just a calculated value, the difference between LIBOR and the forward offered rate.

The Disconnect Between Supply and Demand in Gold & Silver Markets

It comes as no surprise that Kitco is out of product. Their guy has been trying to talk down the price for months.

If you want to see real evidence of manipulation, look at the tick-by-tick numbers in Asia Tuesday morning 8/19/08. There was a 35¢ drop in the ticker for silver on ONE TICK a few minutes before midnight New York time.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Kitco appears to have fixed the bug. Lease rates are now properly shown from around +2.5% to +3.3%, depending on the lease term.

The Disconnect Between Supply and Demand in Gold & Silver Markets

I meant, it is showing the negative of GOFO. Probably the bug is setting LIBOR to zero.

I do not doubt for a second that the Big Players will manipulate the markets. I just do not think it's all that easy to figure out when and how they are doing it.

The Disconnect Between Supply and Demand in Gold & Silver Markets

I think there's a bug in the Kitco software that's causing it to show the Gold Forward Offered Rate (GOFO) rather than the lease rate. In any case, the nominal lease rate is just a computed number - the difference between LIBOR and GOFO. If it goes negative, that does not mean a bullion bank will actually pay you to store and insure their metal.

In short, this whole article is based on a misunderstanding.