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

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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 reason...you 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.

TF

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. https://www.coghlancapital.com/daytrades-application?ak=turd_army

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Jasper
Mar 1, 2013 - 9:57am

White Rabbits

Maybe that will help the price of PM's rebound this month. That would be a nice present!

R man Jstealthbear
Mar 1, 2013 - 9:57am

@ Stealthbear

Yes! They like me too! $2.39 over spot!

I got that e-mail today as well. New shiny on the way at $31.00 each.

Assimilate This
Mar 1, 2013 - 9:51am

Gold Spot (cash) prices for really large amounts

Turd, thank you for the excellent recent podcasts and your informative web site. I registered specially to put up this comment.

Neither Sandeep nor Andrew address the issue of the amount of gold bullion in a proposed cash, spot purchase from a bullion bank.

What I mean is this: you or I can buy a handful of Gold Eagles at some price at a coin store. What happens when you have 1, 10 or 100 Million or more USD to invest in gold. What quote do you get from the bullion bank? At some level of proposed purchase you will get "invited into a back room and given a very private education on the realities and constraints of today's gold market (quote)": this was discussed by FOFOA recently (see extract below)*

https://fofoa.blogspot.de/2013/02/think-like-giant-2.html

I would be grateful if this point could be addressed in a future podcast.

Cheers, AT

*Quote:

If you have, say, $20B that you want to put into gold, you can only do so in paper unallocated through the BBs. When the revaluation happens, as Another said, you will get your $20B in real gold at the new Freegold price. In other words, you buy $20B in unallocated paper gold today and then after Freegold you will have about 11 tonnes of real physical. Alternatively, if you want to take possession of your physical now, or have it allocated now, you are taken into a private room and given a very private education on the realities and constraints of today's gold market. Here's my guess. Perhaps you are given two choices. $20B in paper gold as above and you suffer the same fate as everyone else in paper gold but you're at least guaranteed that physical at the revaluation price (11t), or you can take 22t now for your $20B. Let's see, that 22t option would be at a present price of $28K per ounce. So you're still likely to double your wealth if you take the latter deal and believe the story. But there's no way you are going to get the 370 tonnes that today's price says you should be able to buy.

Jasper
Mar 1, 2013 - 8:55am

@ Koan: hope you are right!

If I see $28.50 again, I think I'll vomit in my mouth. The roller coaster is nauseating. But like they said back in Nam, "if you can't stand the heat, get out of the jungle".

Sure did appreciate Jim Cominsky's pod cast. I think its great when a trader reminds everyone about the fundamentals in such stark terms. The paper game is for the very foolish, or perhaps, the very smart, or maybe the very rich who will soon be very poor.

Watching the crack up of western civilization, while the hive is mostly still asleep, is fascinating, exciting and quite scary. There is going to be much pain. We are suffering it now in "The Grinding" as Hagarth so properly stated it. Or as Turd said last week, "relentless and unforgiving". Soon all who depend on the fixed income markets will feel it as the face value of their bonds tank. Next all those who feed on Gov't largess will feel the pain as they are now in Greece, Spain, Argentina and other places that are but a few steps behind.

The million dollar question is, "how long?". It seems to me that it won't be too much longer. Not with the wild swings we are beginning to see.

atomic180
Mar 1, 2013 - 8:55am

ELVIS has left the building or will/can the PPT exit the market

if ever... now that the Indexes have regained their pre-collapse highs... has the FED implied and does the FED intend to remove the training wheels and allow FREE MARKET CAPITALISM to return to America... if so does that include the PM sector... perhaps a bit much to ask I suppose that when... ITS GOOD TO BE KING... its tough going back to school...

silverstool
Mar 1, 2013 - 8:27am

FUBM!

Austin Powers - fook me and fook yu

That feels better!

Hammer
Mar 1, 2013 - 7:54am

Oh how those naughty banks

Oh how those naughty banks/people/whatever we call them would love to drive the price down as near to the production price of au (circa 1200) as possible to render mines profitless (easy scoop up ?)

Huge fight going on here at 1570.

Green Lantern
Mar 1, 2013 - 7:38am

@Jim Comiskey

Fine rant! Entertaining and informative as always. A pleasure

But dude, don't go into the office spreading those cooties to the other workers. Especially in one of those investment house cubicles.

Get some Eucalyptus Radiata and rub it all over.

Finally, you might be sick. But your hair is killer bros! Not a single hair out of place. By 9am, I still look like Albert Einstein.

Arthur Fonzarelli had nothing over you.

Maybe one of you guys can send him over a bottle of your colloidal silver. He needs a good chinese acupuncturists to release all that heat in the body (lungs) Coincidentally in Chinese medicine lung is metal element. That's one chinese export that isn't over rated. Guarantee he'll feel better in one treatment!

atomic180
Mar 1, 2013 - 7:18am

the reams of paper and documents alone...

is enough to make you want to rent... my daughter recently bought a home and the stack was literally three inches thick... 20 years ago it was less than a dozen pages...

bunnytoujours
Mar 1, 2013 - 7:15am

hagarth I'm with you

You can find some fascinating Allan Watts conference recordings on yt that might help with your outlook. I have been going from these to Milton Friedman lectures all week. Or you might want to dig turquoise in Nevada...a piece of the sky in the ground.

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