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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DayStar
Feb 28, 2013 - 9:40pm

~~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!

Adolf_Hitler
Feb 28, 2013 - 9:31pm

Also @bronsuchecki

Have you ever looked at the futures curve yourself? Here are the settlement prices since last Friday

Feb 22, 2013

Feb 13 1572.4 Mar 13 1572.3

Feb 23, 2013

Feb 13 1586.2 Mar 13 1586.1

Feb 26, 2013

Feb 13 1615.2 Mar 13 1615.0

If this is not called backwardation, then please tell me what backwardation is, your excellency.

Bron SucheckiAdolf_Hitler
Feb 28, 2013 - 9:24pm

@Adolf_Hilter

The arbitrage is buy physical, sell futures, so you have to get the physical to NY to settle against your short position, so you can't "just take delivery in NY".

I have assumed a buy physical in London as that is a much large physical clearing/settlement market and would assume that after local US gold production has been taken up by local US jewellery, coin, etc demand, there is not necessarily that much "excess" physical available in the US to execute that arbitrage in volumes sufficient to generate a reasonable profit. That could be why Sandeep sees backwardation as the US market is a bit tight.

All I know is we don't have bullion banks knocking our doors down desperate to pay premiums to buy our refining output, so the overall global market isn't that tight.

redwood
Feb 28, 2013 - 9:20pm

For Hagarth

https://silver-and-gold-prices.goldprice.org/2013/02/the-gold-price-rose...

Just love this guy's plain talk. No fancy technicals. But he is solid, wise and experienced. And will tell it plainly even if it goes against his best interest as you'll notice he sells metals.

Kcap
Feb 28, 2013 - 9:16pm

@Gold Buffalo

If that were to happen, it would go to $18 and back to $26/7/8 within 24-48 hours.

Honestly...I just don't think they could pull it off. BUT....if they did, the silver would ALL VANISH and that would be it. $50 would be here by June....pushing toward $100 toward the end of the year.

So...guess what...?? If it did, I welcome it.

There is nothing you or any trash talking bear or disinfo agent can do about it. Its all fuel for the silver rocket.

Sorry...but, you have now become BOARD CHUMP.

Kcap

Adolf_Hitler
Feb 28, 2013 - 9:07pm

@bronsuchecki

Well, when you buy physical London, you don't necessarily have to ship the gold from London to New York. Perhaps you can just take delivery in New York. In the case of copper, the LME(London Metals Exchange) has warehouses around the globe. After you buy copper on the LME, you can even take delivery in a warehouse in South Korea. I don't know whether you can do that in precious metals because the LBMA doesn't provide much information on its website.

Texas SandmanGold Buffalo
Feb 28, 2013 - 9:01pm

Gold Buffalo

Anything CAN be. What we need is solid technical evidence to think it may be so.

An incomplete H&S pattern with no drop below the neckline is about as worthless a technical non-pattern as I can possibly imagine.

About the only thing I can glean from this chart that's worthwhile is this: "if silver drops below $26 it would be bad" (intoned like Harold Ramis in GhostBusters when discussing "crossing the streams" from their proton packs). And that doesn't tell me anything I don't already know or believe already.

Hate to be critical, but it is what it is.

Gold Buffalo
Feb 28, 2013 - 8:53pm
R man J
Feb 28, 2013 - 8:52pm

Provident $2.79 over spot for ASEs

Got an e-mail tonight--special until noon tomorrow. $31.00 for 2013 ASEs. I cant believe that they want to get rid of them at this price. What the heck? When will the divergence paper to physical happen...at what paper price?

Bron Suchecki
Feb 28, 2013 - 8:39pm

Backwardation 2

Also, Sandeep's backwardation calculation method is to take the median of 1000 seconds around the London PM Fix which is 16 minutes worth whereas Dan is looking at the whole day's trading and he sees a lot of volatility I bet in the basis and also factors in that to actually step into the market to arbitrage that backwardation you will affect the price and so the "theoretical" 0.20% pa gross profit is probably not what you would get when you try to execute.

I think Dan also is looking across the whole futures strip/curve and doesn't see all of the further out futures below spot.

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