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

135

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

  135 Comments

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stealthbear
Feb 28, 2013 - 11:08pm

@R man J Provident special

My email from Provident today is ASEs for 2.39 over spot price-good until 4:00 p.m. tomorrow. Maybe they like me more.

Stealth

Bill of Rights
Feb 28, 2013 - 11:06pm

Puck see in

The Cannabis Cancer Cure with Rick Simpson

The Cannabis Cancer Cure with Rick Simpson
Bron Suchecki
Feb 28, 2013 - 10:53pm

@ReachWest

1) Yep, although I don't have a problem with Sandeep's methodolgy as he is taking a snapshot at the same point each day so it is comparable day-to-day as the focus of his service (which I receive) is the trend in the basis, no so much its absolute figure at any point in time.

2) That is just what we see down here, could be different elsewhere. At the retail level we aren't seeing a rush of buying at these prices, but we aren't seeing much selling either, which is positive.

Re GLD, I'm not a fan of the "bullion banks need physical, they redeem from GLD" theory as the very act of buying GLD affects price and creates an arbitrage that other step into. See this response to Andrew Maguire where I covered my views on that in more detail.

ReachWest
Feb 28, 2013 - 10:42pm

@bronsuchecki

Thanks for your comments, Bron. If I understand the basis of what you are saying correctly, then I take it to imply;

1) There is backwardation technically, but it is at such a small threshold that it is not adequate for any arbitrage to take place and correct the backwardation. Also the methodolgy used by Fekete and Sandeep only samples a tight interval at the end of the trading day, so it is not truly representative of the bigger picture.

2) There is no tight Gold supply market - you are not seeing it at the Perth Mint as buyers are not beating down the door to buy your refined physical.

I'm pretty much a noob in this area, so I'm really struggling with all the mixed info. The key question in my mind is whether or not there is strong physical PM demand resulting in tight supply or not. If there truly IS NOT tight supply then we have many many more months of this foolish market action ahead of us.

One question that keeps nagging at me is the off take of bullion that we have seen this YTD out of GLD. Does this not imply that somebody (an authorized participant) wants physical metal in lieu of the paper. To me this would imply either tight supply or a total lack of trust in the GLD and it's custodians.

SilverSurfers
Feb 28, 2013 - 10:36pm

Shin Plasters and Toilet Paper

Interesting History Lesson for my kids

Submitted by 22tlane on February 28, 2013 - 1:22pm.

I bought a 1864 Confederate States of America $20 today. Interesting piece of history. In an effort to help win the war the north started printing counterfeit confederate money to devalue the south's currency. Our dear leaders sure do not learn their history very well. It had been in an old book as a bookmark for years. I guess we can always use our useless FRN's as bookmarks one day.

=====

I have studied the civil war for 2 decades, and to this day, I have never heard of the North counterfeitting confederate notes. You got my attention.

But in that war, soldiers with wounds, with lack of med supplies, would PLASTER the worthless confederate notes on the wounds to stop the bleeding, and the CSA notes became known as "Shin Plasters". I would hate to feel whats coming down the hersey highway, that modern cotton weave, I bet, is one heck of butt scratcher.

OUCH!!!!

=== well well well, surprise surprise surprise

After the Civil War broke out in 1861, the newly established Confederate government began to issue it's own money as legal tender to the citizens of the South. The gamble was that if the South won the war, the money would be redeemable. The 1st note from the Government of the Confederate States of America was issued in April of 1861. From then on, notes were issued on through 1864. Almost every Confederate note was painstakingly hand signed and numbered. It is not uncommon for these notes to have uneven, or rough borders since scissors or shears were used to hastily cut the sheets of notes apart.

Counterfeiting became a major problem for the South. The North played a big role in this action by printing counterfeit notes and distributing them in the South causing massive inflation. Towards the end of the War, Southern citizens lost confidence in the Confederate currency, and many destroyed their notes, believing them to be worthless. Bartering, and the black-market Northern "greenbacks" took over as main forms of exchange for goods and services.

====

Im gonna have a midnight candle seance with Shelby Foote.

He did describe the inflation, foot riots, and such like, but did not describe northern counterfeiting of CSA notes, in his trilogy, but did discuss the French Bonds.

====

TURDVILLE JUST ROCKS!!!!

Bron Suchecki
Feb 28, 2013 - 10:25pm

@Adolf_Hilter

The professional gold market works on the concept of "loco" or location. Unlike fiat paper which is truly virtual, gold is physical therefore bullion banks factor in the physical transfer cost when pricing.

The spot price Sandeep is using, mostly likely XAU on Reuters, is for unallocated gold "loco" London. If you buy that and ask for allocation, you will get physical gold in London. They will not just allocate your London unallocated for physical gold in the US at no cost.

The bullion banks do operate vaults in many locations, but the price of gold in each of those locations is different, some at a discount to London, some at a premium to London, depending on the local supply and demand situation. See this post for more info https://goldchat.blogspot.com.au/2008/07/gold-value-chain-part-v-trading...

Re China, a lot of our refining output goes there.

Adolf_Hitler
Feb 28, 2013 - 9:59pm

@bronsuchecki

Brinks Ltd is an LBMA custodian. Brinks Inc is a Comex depository. The LBMA even has warehouses in Zurich as a part of its clearing system. If Brink, Inc, which is a Comex depository, is also part of the LBMA clearing system (although there is no info on this), you can definitely buy spot physical and get your gold in Brinks Inc, as a part of the LBMA clearing system, and then use the same metal to settle your short position on futures as Brinks Inc is also a Comex depository.

By the way, not only the physical gold market in the US is tight, the market in China is tight too. Since China is a much larger buyer of gold than the US, anyone may ignore China at his peril

Bron Suchecki
Feb 28, 2013 - 9:57pm

@Adolf_Hilter

There is no need for "your excellency" name calling, I'm not making value judgement or calling anyone wrong or right, just trying to stick to the facts and understand why Sandeep and Dan can look at the same thing and come to different conclusions.

First point is that Sandeep calculates basis from spot gold to the nearest futures (see this recent Max Keiser interview of Antal Fekete where Antal explains this point). The Feb futures is not spot.

Anyway, what you figures show is technical backwardation of ten to twenty cents. The point I was trying to make in my earlier posts was that this is a technical or definitional backwardation but doesn't mean much in terms of whether it is a signal of gold going into hiding.

See this post of mine, where I conclude:

"Therefore, the only backwardation that matters to me is backwardation that:

a) means reasonable profit and
b) no one is willing to take that profit (that is, it is persistent).

Any other backwardation is just noise and has no “information value” by itself."

You may also find this post "Degrees of distrust" of interest, which summarises a presentation I did at the 2009 Gold Standard Institute seminar in Canberra which Antal Fekete and Sandeep attended. I think we are still in the 2nd phase because the backwardations we are talking about are small.

Jasper
Feb 28, 2013 - 9:44pm

I'm with Hagarth . . .and here is my rant

Based on Psalm 83.

That snakey witch, BM plots with Ruprecht against the good guys.

As you did to Midian and Sisera and Jabin . . . do to those rat-bastard bankers!

BTD? I did that when it moved from $50 down to $42! Thats at 20% pullback. Isn't that reasonable enough in a bull market. NOoooo, they want a full 50% pullback! Ok here we are at $28.?? OK how about another 50%? $14.00? why the hell not! It seems that the market is totally out of touch with reality . . . ? but the market is never wrong. So then we are totally out of touch with reality?! " . . . . may they perish in disgrace." I hope those financial deviants get their throats ripped out!

Yes, as you can tell, I'm grumpy tonight. Every thinking person sees what is coming and attempts to prepare by buying a little shinny. Nooooo, they beat the crap out of it and drive into the garbage dump. So lots of thinking people say, "oh, I guess I was wrong" and dump their shinny. So thanks to the EE, lots of people will be facing this economic tsunami with no insurance!

vs. 10 "make them like dung (shit, or turds) on the ground!"

. . . I like it! A proper emotional reply to all those asses found in Psalm 83. applied to all the Jon Corzine's out there, playing fast and loose, and using the legality of the markets to manipulate the markets.

DayStar
Feb 28, 2013 - 9:43pm

Harvey's Up!

Richard Daughty (Mogambu Guru): Is there an example - throughout history - of a fiat currency NOT going to zero? Short answer - NO. Long answer - NO. All 600 have failed. Darcy Marud: The junior miners are struggling, and without them we will not get the big new discoveries and production will decline. Jim Willie (Golden Jackass): The Fed has no Exit Strategy, never had any one, and will not be granted one. It is stuck in the monetary corner, totally reliant upon its Weimar printing press. James McShirley: If you think it's been a LONG time since we saw a +2% day like yesterday you would be right. The intensity of the gold suppression is obvious when you realize the last time gold gained/got capped at 2% was back on November 6th. Prior to that, the last time was September 14th. Thus, we have gone 5 1/2 months - and 120 trading days - with only THREE days that even remotely had a meaningful rally. U.S. citizens remain the worst informed people of any industrialized nation - the most subjected to propaganda. The British are a close rival. The Goebbels methods are actively at work in propaganda widely disseminated. Andrew Hoffman: Since TPTB went into "PROPAGANDA OVERDRIVE" last year, chart after chart depicts the widening DISCONNECT between stocks and business (Main Street Sours As Wall Street Soars) as the REAL economy continues to contract (Wal-Mart Situation "Getting Worse" New Leaks Reveal) making it impossible for the Fed to stop PRINTING. All this and more on...

The Harvey Report!

https://www.tfmetalsreport.com/comment/590291#comment-590291

DayStar

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