2 Articles
Sorry for the poor quality---tried to edit, but it did no good.
Are Gold Futures threatening to go into backwardation???????
Perhaps the Perfect Storm is nearer than many suspect. Looking forward to the reaction of CSI SP if these things materialize & also if CSI's pending dominoes all fall into place concurrently. The probabilities of this occurring are in reality not that remote........dannblack
Wikipedia:
In financial terminology, backwardation means a downward slopingforward curve (as in an inverted yield curve). A backwardation starts when the difference between the forward price and the spot price is less than the cost of carry, or when there can be no delivery arbitrage because the asset is not currently available for purchase.
#1. Longstanding Gold Contango Threatened?
Resource InvestorPublished 4/12/2010
Gold investors need to pay attention to the futures curve for gold which has suddenly taken a turn for the worse after a long period of positive upward sloping curves.
It could be trader finger trouble that sent the June 2015 gold contract down to levels more consistent with expectactions for 2012. It was last traded at $1,229.60 - still showing a healthy spread compared with the current spot price of around $1,163, but it's only half the contango on the 2014 contract. The curve has also flattened through August 2012. Let's not overwhelm the day's good news though. Gold for June delivery, the most active contract, added 0.8 percent to $1,170.70 an ounce and was last at $1,165.20. Futures rallied 3.2 percent last week, the most since Feb. 12. Importantly, gold bulls continued to buy physical stock. Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, rose 0.61 metric tonne to a record 1,141.04 tonnes.
#2. Peak Gold and Inflation: A Perfect Storm
Marc Davis of BNW Newswire
Published 4/13/2010
The inexorable onset of accelerating inflation, matched with a global decline in gold production, will underpin high-flying gold prices for years to come. So says John Embry, a world-renowned long-time gold advocate and the chief investment strategist at Toronto-based Sprott Asset Management, which runs the Sprott Gold and Precious Metals Fund.
"As inflation rears its ugly head and future demand for gold promises to overwhelm mine supply, gold’s price will launch a parabolic rise from current levels in the near future," he says. "Gold has much, much further to go".
The monetization of various forms of government debt by the printing of large sums of money, disarmingly referred to as ‘quantitative easily,’ is proving to be the catalyst for accelerated inflation, he says. Thus, if inflation gathers momentum, long-term interest rates will rise, which in turn should speed up the weakening of the anemic US dollar, Embry reasons.
Furthermore, gold is increasingly asserting itself as a powerful inverse proxy to the dollar. This makes the yellow metal the ultimate safe haven alternative to holding US ‘fiat’ money (a currency that is not backed by anything of tangible value), he adds.
Then there’s the fact that most of the world’s major deposits are virtually mined-out and new ones are becoming harder to find and more expensive and politically problematic to bring on-stream, Embry says.
So the rally in bullion prices is far from over, contrary to what some market pundits are suggesting. It has is merely in a consolidation phase before its next up-leg, Embry says. In fact, gold’s price still has a long way to go before it even comes close to matching its peak price during its last major bull run, when it hit an intraday high of $875 on January 21, 1980, he adds. To do so it would have to rise to around $2,300 on an inflation-adjusted basis.
Hence, inflation, a debased US dollar and shrinking global output will soon converge to act a springboard for gold’s ascendency well above the $1,100 level, Embry says. "At that point, investment demand will explode on a worldwide."
Even the president of the world’s largest gold producer is now dropping hints about the implications of a growing below-ground supply squeeze on gold’s pricing. Aaron Regent of Barrick Gold (TSX: ABX) (NYSE: ABX) recently told a gold investment conference in London that major gold mining companies are continually struggling to replace mined-out reserves. "There is a strong case to be made that we are already at peak gold," Regent said. "Production peaked around 2000 and it has been in decline ever since. And we forecast that decline to continue as it is increasingly difficult to find ore."
The facts certainly seem to underscore Regent’s argument. Indeed, global gold output has been dwindling by about 5% per annum since it peaked in 2000-2001, even though bullion’s spot price has quadrupled since then. In the world’s mature gold fields the situation is even worse. For instance, in North America output has dropped over the last decade from 17.06 million ounces in 1998 to 10.59 million ounces in 2008 – an extraordinary 60% plunge.
Consider the fact that the world’s top trio of producers -- Barrick Gold, (Anglogold Ashanti NYSE: AU) (LSE: AGD) and Newmont Mining (NYSE: NEM) (TSX: NMC) -- each generate between 5 to 8 million ounces of gold per annum. That means that at least one new multi-million ounce deposit needs to come on-stream every year just to replace this output. That simply is not happening.