I read this some time ago:
In a sense, even today in 2010, credit can still be said to mature into gold, albeit at a variable price. But if the gold basis goes negative and stays negative, in other words permanent backwardation of gold strikes*, it will herald the advent of Armageddon. The overwhelming majority of working economists don’t see that gold still plays an indispensable role in the credit system. The U.S. Treasury bond market has a sine qua non adjunct in the gold futures market. Without it, bonds would be irredeemable: they would be promises maturing into more promises, maturing into more promises, etc., ad libitum. But once permanent gold backwardation strikes, the prop of gold futures is removed, and the U.S. Treasury bond market will succumb to the sudden death syndrome. For the time being it is supported by speculative demand, but the demise of the gold futures market will make the bond speculators scurry for cover. Nothing will save the “super-safe” investments in the “full faith and credit” obligations of the U.S. government.
As long as confidence in the monetary system is unimpaired, gold will be widely available and the credit system will work properly. Increasing unavailability of gold indicates the threat of a breakdown of the credit system. Gold is going into hiding. Watch for the day when it will not be for sale at any price. When this happens the credit system, and along with it trade, will collapse. It is not a matter of equilibrium or the lack of it. It is a matter of life or sudden death.
Saw this this morning:
James Turk continues:
“But the real story is playing out in the interest rates. On each push below $1,800, gold’s interest rates go out of whack. What’s happening, in effect, is gold is moving toward backwardation every time it moves below $1,800. I don’t think you can rely on the GOFO rate, the gold forward rate, any longer for an accurate picture of gold’s interest rates.
All of this, of course, relates to yesterday’s Fed announcement, which confirms they are going to keep dollar interest rates exceptionally low through mid 2013. In this present low interest rate environment, it is very easy for gold to slip into backwardation, and clearly central banks don’t want that outcome. Everybody knows that when gold goes into backwardaton, it’s game over for national currencies.
Every once in a while you see a moment in the gold market when all of the factors impacting the gold price are screaming, ‘Buy now!’ Each and every time gold breaches the $1,800 level to the downside, we see one of those rare moments. ...
I don't know how to check or verify what Mr. Turk is saying here with regards to backwardation, but I have been reading Harvey's blog and its quite apparent that something is going on because all month long, the open interest in September has been rising even as deliveries have been steady. The demand for physical gold (redeeming paper contracts) has been extraordinary for a September month.
Watching the spot charts for both gold & silver over the last week or so has been interesting. Every time there is major news that should be supremely bullish for PMs (like the Swiss pegging their currency to the Euro, French banks' credit rating downgraded, Greece default news, slow motion run on the Euro banks, etc.), the PMs get hammered. This is happening pretty transparently lately (over the last week or so) during London trading as soon as the Asian markets close.
There is evidence that politicians are getting nervous (I'm guessing that US politicians aren't the only ones in the world who are aware of the "tradition" war ala the wikileaks Chinese cables). First it was China a few years ago repatriating their gold (tungstengate). Then more recently Venzuela demanded their gold repatriated. Now the Dutch are worrying about their gold holdings. France and Austria are both enacting laws to restrict the public's ability to buy physical gold.
I get the sense that the dam is beyond stress tolerances.
"I get the sense that the dam is beyond stress tolerances."
That seems to be the case "out yonder," but where I am, everything seems normal. The sun rises and sets, we don't get enough rain, people buy outdoor gear and jeeps by the train loads, and I was the only one at the coin shop this morning, which was just flush with silver offerings from dimes and up in the back and rounds to 4-5 100-oz bars stacked in the glass case. We have nowhere near a bubble as long as I see people going into the gold/silver buyer's shop where people are selling their gold/silver, instead of the coin shop to trade their paper for the real deal.
I saw that big drop this morning, so I thought this;
"This is bullshit... On the one hand, silver has gone from the point I used to be able to buy it by the 10-oz bars, and could buy several of them at a time, to the point of measuring how much I can trade for in the single/low double digit ounces, to that point now of deciding how many dimes I can afford to get. On the other hand, the big commercial traders, specs, and bullion banks together have been able to paint the tape within cents of each day this week to merely make the point, 'We control this market COMPLETELY, and there's not a damn thing you can do to stop us, and we can run this out as long as we want.' THAT is bullshit. This is a hard position to be put in (snicker!!). So, I'm going to take my $20 slip and trade for silver while I can."
And I did it this morning. I was waiting for such an opportunity to get me back into trading for silver no matter what the cost up to a point. I've got a feeling that this is going to drag out for 5-10 years, and hopefully, I'm wrong. I have been realizing for a long time that it's best for the reset to happen NOW even though I have not a lot of silver, rather than for me to accumulate a lot more in the next 5-10 years, and things in fiatland get so bad that I don't survive at all the transition to goldland. In other words, the longer we wait to transition out of the current monetary order, the worse things could be before and during the transition. I'd rather it happen now while things are normal where I am than to have Mad Max recruiting people in the neighborhood before we have any idea what we're supposed to do.
Yes, there is a transition, the push towards a cashless society where governments and people will have no choice but to accept a global credit card number. Unlike the credit cards of today, the intent will be for these balances to roll over indefinitely without risk to the creditor. The debtor, of course, must submit to the demands of the creditor or risk being "cut off". As long as the creditor can create digits out of nothing, credit can be extended indefinitely.
This agenda has been carefully planned for quite some time now and it appears we are nearing the end game. All that stands in the way of the monetary monopolists is the removal of any competition to their perpetual debt based credit card system. Precious metals, in their physical form, represent that competition. The banking cartel must also monopolize the bond market outright. This too is well underway and worthy of another discussion.
The monopolists know they cannot compete against physical metal but have the power to dilute it with paper nonetheless. Through ETF's and futures contracts on undeliverable metal, the plan is simple: Prevent the herd from making the distinction between paper and physical by unifying both forms of the metal to a single price.
All that it takes is to subject this bastardized price of the monetary metals to violent episodes of boom and bust to cement the idea that PM's are NOT a safe alternative to whatever the banking cartel is selling us.
Eventually, even the sheep will make the distinction between paper and physical and will refuse to part with the real metal at the going paper rate. They will refuse to roll over their contracts, especially as the bust cycles become increasingly more violent. They will turn to coins and bars instead of fraudulent GLD or SLV shares. These last two days will be met with a surge of new buying of the physical kind into strong hands. Only question is, will there come a time when it will be too late to cash in on cheap metal as it disappears altogether in strong hands.
Yes, they will demand their gold and silver in its physical form, but I suspect these demands will be countered by some yet unforeseen Draconian law, preventing the exchange of paper contract to physical metal in the exchanges, finally exposing the fraud.
Those left with broken promises (the vast majority) will be forced to trade those contracts for some worthless paper alternative. Physical metal, however, will be priced upon better, more realistic terms and demand a much higher premium by those who knew the difference to begin with.
There is backwardation in both gold and silver as of today, ????
I was sure the contango would have come in nicely, however it looks as
though the BW is hitting gold too. WTF???
Very interesting article about backwardation and it's importance (and motivation for central bank intervention into the gold market):
Another good article alleging central bank gold at the heart of the manipulation: