Nikhil

Gold In Backwardation? Not So Fast ..

Prof Lewis talks about gold being in backwardation whereas this article by hardassetinvestor very cleary discerns that not being the case. Where do see gold being in backwardation ?

I agree dollar weakness could imply (as it has historically) positve movement of gold prices, but when will the dollar start weakening is anybody's guess. So far all the arguments about flight to safety seem to be holding up and $ has been rising steadliy since July (see DXY index ) And infact in the short term most of the financial analysts expect this trend to continue (I am not saying they will be correct) and that makes timing an entry in gold tougher.

On Nov 26 11:29 PM User 307894 wrote:

> Pay attention to professor Lewis at minyanville.com/
>
> Read this article on Gold potentially hitting 1200 this year and
> 4000 to 5000 next year. These guys have been damn accurate on predicting
> these last two years.
>
> www.minyanville.com/ar...
>
>
> Buy Gold NOW!!!!!!!!

Gold In Backwardation? Not So Fast ..

Shouldnt the net rate one earns by borrowing and selling it be LIBOR - GOFO = 1.4 - (-0.08) = 1.48 and not 1.32 as you calculated, (assuming I invest the cash proceeds from selling gold, and get Libor on that cash deposit)? Please confirm

And I infer that there are also two opposing forces on gold prices:
1. Low gold forward rates putting downward pressure: Implying that there are institutions willing to lend gold and there is easy availability.
2. Historical -ve fwd rates implying a possible upmove: though I dont think this is a strong point, since there can be lots of external factors affecting gold price. In sep 99 gold didnt rally. It went from 300 to 325 in the short term (oct 99) but ended the year at 288. Secondly in Mar 01 again there was an immediate rally and infact gold moved up more when Spx moved down in those recessionary days.

Hence I dont whether to read this as a +ve or -ve for the gold prices? Though I might lean towards -ve pressure on the prices in the short term since I think the first point mentioned above is more logical.