TFMR Podcast #41 - Andrew Maguire Discusses Gold Backwardation and Current Gold Price Trends


Today, we conclude our analysis of the current backwardation in gold by visiting with legendary trader, Andrew Maguire.

A couple of things before we get started:

  • If you haven't yet, I strongly encourage you to listen to yesterday's podcast with Sandeep Jaitly before you listen to this one with Andy. I posted Sandeep first for a need as clear an understanding of backwardation as possible so that you can give this your full consideration.
  • There are good people, like Trader Dan, who have looked at this issue and concluded that there is no current backwardation in gold. Perhaps it all depends on what you're measuring. All I know is that Sandeep and Professor Fekete are global authorities on this stuff and I tend to side with them. Reasonable people can disagree, however, and it is disagreement that helps to make a "market", whether it's gold, silver, stocks, whatever.
  • Andy will have more to say in March and he's promised to come back soon for another podcast. This particular podcast primarily deals with the current backwardation and the implications for price in the short, intermediate and longer terms.

And keep in mind as you listen...Andy is "boots on the ground" in London, the center of the gold trading world for the past 200+ years. The Comex in New York controls paper price but, as you know, the underlying fundamental going forward is global, physical demand and this takes place in London. Where Comex may physically settle 1,000,000 troy ounces (30 metric tonnes) once every two months, London allocates and settles that much physical metal nearly every single day. Therefore, spot vs futures backwardation is a big, big deal. It drives allocation and purchase decisions for many of the central banks and other sovereigns currently racing to convert dollars into hard assets. Therefore, you must fully consider the ramifications of what is happening and I'm confident you'll find that this podcast will promote your understanding of the situation.


p.s. Once again, I urge you to consider a subscription to Coghlan Capital, perhaps only for Andy's detailed and extensive, weekly commentary. He provides the reader with background and information you simply cannot and will not find anywhere else. Along with the commentary, you also get real-time access so you can follow along with Andy's daily trading activity as well as unbiased and objective technical analysis from Paul Coghlan. Yes, it's expensive but what service of real value isn't? At this critical time, it might be the smartest investment you could make.


Mar 3, 2013 - 7:48am

After a gazillion log in

After a gazillion log in attempts being asked to repeat the answer to the same math question over and over again which I did and then getting booted out each time, I finally refreshed the log in page and got a new question. It's bloody annoying and the page should give out a new question each time automatically but doesn't. Grrrrrrr. C'est la vie I guess but hopefully this issue can be addressed in due course

Mar 2, 2013 - 11:39pm

Article on new gold mine

I am a long time lurker, this blog is the best.

Need some help.

In last two weeks on turdville a blogger article regarding new mine drilling discovery with Au of 100 oz per ton and Ag of 400 plus oz per ton. Best in years.

Can anyone point me to the article?

thank you


The Vet
Mar 2, 2013 - 10:54am

Disturbing problem...

I think that Andrew, Trader Dan and Sandeep are looking at the issue from different viewpoints; rather like the blind men describing the elephant. All are correct in their descriptions from their own viewpoints.

Essentially, backwardation is a paper gold derivative effect, not genuinely related to the physical metal. Any agreement or contract relating to a future price is a paper promise and nothing else. All transactions involve costs and risks and while the raw numbers may show a possible profit, after those transaction costs and risks are considered there may be no practical way to harvest that profit certainly if a transfer of actual physical gold is required.

That doesn't mean backwardation doesn't exist nor does it mean it is not significant.

In my opinion backwardation is alive and well at any time that rolling a long paper contract to any later month at the same strike can be done for a profit. Conversely, rolling a short position out results in a loss. Both go hand in hand and both are purely paper transactions.

There are two possible causes of this paper backwardation. It may be related to a shortage of physical supply of metal for delivery at the contract price, but it also can be caused by a loss of interest of longs in buying the paper contracts offered by the short sellers. That can be caused by an oversupply of paper gold being offered for future expiry, not necessarily a shortage of metal.

Remember that the bulk of COMEX and LBMA trading is between traders who neither own the gold they offer to sell nor want to own gold by taking delivery. They are trading paper promises and the paper does not obey the laws of supply as it can be, and is, generated at little cost for as long as there is any demand. However, once generated it can only be extinguished by exchanging it for either cash, an equivalent contract, or metal. Alternatively the contract obligation being traded can be deferred by rolling it to a later month, but that's just "kicking the can down the road" and at some time in the future it has to be settled.

The current backwardation is most likely a result of an oversupply of short paper contracts, not a shortage of spot gold. The commercial shorts generated too much supply of paper when they forced the price down and then they redistributed many of those short positions to the speculators. Now, as those positions expire the speculators either attempt to close their shorts (which will force up the price - and result in a loss to them) or they try to roll them to a later expiry and "hope" for a lower price next month. With more paper supply in those later months than there are willing long buyers the price has to drop in order for the shorts to "kick the can down the road" for a few more months.

That's paper backwardation. It's just the start of the eventual development of the two tier market which will be obvious when the divorce of the paper and physical markets becomes final. Right now it's just at the irreconcilable differences stage!

Mar 2, 2013 - 10:47am

@ katie

3+0= 3 wrong

3+0=3 wrong again

i finally got one i could handle 10+1=11 phew

hang in there i know we need to keep spam attacks at bay. maybe something was amiss with the 'new math' cache. maybe to mods could work out a way to make 'established' members, (trolls, coolaiders or whateverers) to gain easier access



Mar 2, 2013 - 10:35am

So confused

Sinclair talks of lows by end of march and a big picture price of gold in the 4-5K range. Trader Dan says charts simply look ugly and with potentially a lot more downside to come. Hedges getting out of the gold/silver trade. What to do, what to do. Pretty funny looking at the predictions for the last hat contest.

Mar 2, 2013 - 9:46am

On Andrew Maguire

Mr Turd, before Andrew Maguire's next podcast on the London precious metals market, is it possible for you to create a new post to collect the questions that Turdites would like to ask? Then the next podcast may be more useful for the Turdites.

Key Economic Events Week of 11/30

11/30 9:45 ET Chicago PMI
12/1 9:45 ET Markit Manu PMI Nov
12/1 10:00 ET ISM Manu PMI Nov
12/2 8:15 ET ADP Employment Report
12/3 9:45 ET Markit Services PMI Nov
12/3 10:00 ET ISM Services PMI Nov
12/4 8:30 ET BLSBS
12/4 8:30 ET US Trade Deficit Nov
12/4 10:00 ET Factory Orders

Katie Rose
Mar 2, 2013 - 8:28am

Trouble logging in

I've come to conclude that the "New Math" has taken over this website.

Yesterday I wasn't able to get in at all.

The Math question was: 2 + 0 = I filled in 2.

Wrong answer it told me, repeatedly, until it barred me altogether.

Earlier tonight the same thing happened. 2 + 7 = I filled in 9.

Wrong answer. Barred again.

The math questions are so much easier than the other weird letters we used to have to do to log in.

But, good grief! Either Math has changed, or I really am getting senile.

Mar 1, 2013 - 11:03pm

@Puck List of Practioners

Sorry to hear you have to overcome the smokes, its a tough thing to do. I believe that one of the links i gave you yesterday was from the companies website, this link will show you on the right hand side Practitioners in each state that you could likely purchase and get more information from.

GrigeoPuck Smith
Mar 1, 2013 - 9:57pm

Albert Einstein: Plagiarist of the Century

When the scandal breaks, the physics community, Einstein's supporters and the media will attempt to downplay the negative news and put a positive spin on it. However, their efforts will be shown up when Einstein's paper, "On the Electrodynamics of Moving Bodies", is seen for what it is: the consummate act of plagiarism in the 20th century.

"Einstein, the Plagiarist
It is now time to speak directly to the issue of what Einstein was: he was first and foremost a plagiarist. He had few qualms about stealing the work of others and submitting it as his own. That this was deliberate seems obvious....

Mar 1, 2013 - 9:23pm

@Hagrath: "Assuming that you

@Hagrath: "Assuming that you do not smoke..."

I do, but I have a pack an a half left. I'm not buying any more. I intend to have stopped by Sunday night.

Subscribe or login to read all comments.

Become member and subscribe to Turd's Vault


Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 11/30

11/30 9:45 ET Chicago PMI
12/1 9:45 ET Markit Manu PMI Nov
12/1 10:00 ET ISM Manu PMI Nov
12/2 8:15 ET ADP Employment Report
12/3 9:45 ET Markit Services PMI Nov
12/3 10:00 ET ISM Services PMI Nov
12/4 8:30 ET BLSBS
12/4 8:30 ET US Trade Deficit Nov
12/4 10:00 ET Factory Orders

Key Economic Events Week of 11/23

11/23 9:45 ET Markit flash PMIs
11/23 1:00 ET Goon Daly
11/23 3:00 ET Goon Evans
11/24 9:00 ET Case-Shiller home prices
11/24 10:00 ET Consumer Confidence
11/24 11:00 ET Goon Bullard
11/24 12:00 ET Goon Williams
11/24 12:45 ET Goon Chlamydia
11/25 8:30 ET Q3 GDP 2nd guess
11/25 8:30 ET Durable Goods
11/25 10:00 ET Personal Inc and Spend
11/25 10:00 ET Core inflation
11/26 US Market holiday

Key Economic Events Week of 11/16

11/16 2:00 pm ET Goon Chlamydia
11/17 8:30 ET Retail Sales
11/17 8:30 ET Import Price Index
11/17 9:15 ET Cap Ute and Ind Prod
11/17 10:00 ET Business Inventories
11/17 1:00 pm ET Chief Goon Powell
11/18 8:30 ET Housing Starts
11/18 1:20 pm ET Goon Bullard
11/19 8:30 ET Jobless claims
11/19 8:30 ET Philly Fed

Key Economic Events Week of 11/9

11/9 1:30 pm ET Goon Mester
11/10 7:30 am ET Goon Kaplan
11/10 10:00 ET JOLTS job openings
11/10 10:00 ET Goon Rosengren
11/11 Veteran's Day. Bond market closed.
11/12 8:30 ET CPI
11/12 11:45 ET Chief Goon Powell
11/12 2:00 pm ET Federal budget
11/13 7:00 ET Goon Williams
11/13 8:30 ET PPI
11/13 8:30 ET Goon Bullard
11/13 10:00 ET Consumer sentiment

Key Economic Events Week of 11/2

11/2 9:45 ET Markit Manu PMI
11/2 10:00 ET ISM Manu PMI
11/2 10:00 ET Construction Spending
11/3 U.S. Election Day
11/4 November FOMC begins
11/4 8:30 ET ADP jobs report
11/4 8:30 ET US Trade Deficit
11/4 9:45 ET Markit Services PMI
11/4 10:00 ET ISM Services PMI
11/5 8:30 ET Productivity & Unit Labor Costs
11/5 2:00 ET FOMC Fedlines
11/5 2:30 ET Chief Goon Powell presser
11/6 8:30 ET BLSBS
11/6 10:00 ET Wholesale Inventories

Key Economic Events Week of 10/26

10/27 8:30 ET Durable Goods
10/27 10:00 ET Case-Shiller home prices
10/27 10:00 ET Consumer Confidence
10/27 10:00 ET Richmond Fed
10/28 8:30 ET Advance Trade in Goods
10/28 8:30 ET Wholesale Inventories
10/29 8:00 ET ECB monetary policy stmt
10/29 8:30 ET Q3 GDP first guess
10/30 8:30 ET Personal Income and Spending
10/30 8:30 ET Core Inflation
10/30 10:00 ET UMich Consmer Sentiment

Key Economic Events Week of 10/19

10/19 11:45 ET Goon Chlamydia
10/20 8:30 ET Housing Starts
10/20 1:00 pm ET Goon Evans
10/21 10:00 ET Goon Mester
10/21 2:00 pm ET Fed Beige Book
10/22 8:30 ET Initial Jobless Claims
10/23 9:45 ET Markit Oct flash PMIs

Key Economic Events Week of 10/12

10/13 8:30 ET CPI and Core CPI
10/14 8:30 ET PPI
10/14 9:00 ET Goon Chlamydia
10/15 8:30 ET Philly Fed
10/15 8:30 ET Empire State Idx
10/15 8:30 ET Import Price Idx
10/16 8:30 ET Retail Sales
10/16 9:15 ET Cap Ute & Ind Prod
10/16 10:00 ET Business Inv

Key Economic Events Week of 10/5

10/5 9:45 ET Markit Svc PMI
10/5 10:00 ET ISM Svc PMI
10/5 10:45 ET Goon Evans
10/6 8:30 ET Trade Deficit
10/6 10:00 ET JOLTS job openings
10/6 10:45 ET Chief Goon Powell
10/7 2:00 ET Sept FOMC minutes
10/7 3:00 ET Goon Williams
10/8 8:30 ET Initial jobless claims
10/9 10:00 ET Wholesale Inventories
10/9 12:10 ET Goon Rosengren

Key Economic Events Week of 9/28

9/29 8:30 ET Advance trade in goods
9/29 9:00 ET Case-Shiller home prices
9/29 10:00 ET Consumer Confidence
9/30 8:15 ET ADP employment report
9/30 9:45 ET Chicago PMI
10/1 8:30 ET Personal Income and Spending
10/1 8:30 ET Core Inflation
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/2 8:30 ET BLSBS
10/2 10:00 ET Factory Orders

Forum Discussion

by 11IMIX, Dec 3, 2020 - 7:02pm
by 11IMIX, Dec 3, 2020 - 7:01pm
by SteveW, Dec 3, 2020 - 3:41pm
by Nijle, Dec 3, 2020 - 11:15am