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.


Gold Buffalo
Feb 28, 2013 - 8:35pm

Erik Swarts = Albert Einstein

Presented without comment. Ok just one comment. Apparently Erik Swarts is like a famous scientist from the 1940's, and silver is headed to the sub 20's.

Bron Suchecki
Feb 28, 2013 - 8:27pm


Just note that Sandeep's reference to 0.20% per annum backwardation in the previous interview was for a contact with 5 weeks left which equates to approx $0.30 "gap" ($1550 x 0.20% / 52 weeks x 5 weeks). Considering that to actually arbitrage that in volume you need to buy physical London and ship it to NY which would be around $0.20 an ounce then the profit on 1 tonne of gold would be 32150.75 x $0.10 = $3215. Out of that you have vault staff cost and receival costs into a COMEX warehouse and other incidentals. When you consider the arbitrage trader is tying up $50 million dollars of their bank's capital to make a few thousand bucks, that is why the backwardation exists - it is just not attractive enough to be arbitraged.

I think this is what accounts for the difference between Sandeep and Dan Norcini - Sandeep is looking at a theoretical number on paper (he is more interested in the trend of the number and whether it is moving up or down) whereas Dan is a front line trader who doesn't see any real profit to be made and thus just considers the 0.20% "backwardation" as noise.

Feb 28, 2013 - 8:04pm

Report from LCS in Oregon

Had to liquidate some AU today to help pay the bills. I always like to pick up a little Silver as compensation, but my LCS had none! No bullion what-so-ever. The owner said he had orders in for 10 oz. bars and Silver Eagles and I could lock in today's prices if I wanted to order and wait for delivery. He also mentioned that he only had 50 Silver Eagles unspoken for, out of the order of over 1500 that were expected in next week. He said that he has been selling a lot of silver, everything he has brought in (bought) plus thousands of ounces he's had to order each week. It's a small coin shop in a small town -- so even in this haven for retires, hippies, and college students, a lot of PM's are going out the door, especially silver. This has been the situation here since 2013 began.

So, I was able to pay the rent for March, buy groceries for the next couple of weeks, get some meds for my dog, and move $500 over to my Scottrade IRA so I could buy some more mining shares. I want to get more GPL, which is around $1.20 and MUX at $2.43. Haven't seen GPL or MUX this low since the end of 2010. I was totally out of the shares for most of 2012 up until January of 2013. So far, what I bought then is underwater by about 25% -- but since I know it's a Casino anyways, I'm willing to gamble with a few $K's looking for a huge upside.

I'm just a micro player, but I am willing to risk this amount and maybe, just maybe pick up some fiat on the upswing, and of course, use the proceeds to expand my stack. My theory (all gamblers say this) is you can't win if you don't play. With prices this low, what the hell? Beats going to Vegas and the drive is a lot shorter.

Feb 28, 2013 - 7:53pm

re: Where is the shortage?

Answer: Germany wants their fucking gold back, only it's going to take 7 years for just a partial fill.

That said, with Chris Martenson's call (link just below) for a huge market correction sometime this year, there could definitely be a throwing the baby out with the bathwater scenario where gold and silver are hit. Where they fall from is the question, could be much higher by then if Sinclair is right about his March 27 window...

"While there’s always a chance that the Fed can keep things magically elevated and they’ve done a very good job so far it is my view that they cannot do this for much longer without a serious correction to justify an even larger program of overt and covert intervention."

Feb 28, 2013 - 7:13pm

@hagarth - How You Feel

Your despair is certainly warranted and I wouldn't begrudge you those feelings. I often feel the same.

However, how you choose to react to those feelings is key.

Consider that whenever you see posts like your here, the metals are usually prepared to pop very soon.

Another good contrarian indicator is when you see lots of bickering. This time, we are seeing it between board participants but also a spirited "debate" amongst the gurus. Everybody is on edge. That is a good sign for me.

Recall the celebratory mood near $50 / Oz in silver? That is not what I'd like to see, unless and until silver is trading at $100 an ounce!

Another tip on contrary sentiment: I love taking a look at the Yahoo! boards. When the longs are dominating and happy, planning Vegas "get-togethers" etc., it is time to be cautious. When the shorts are laughing it up, bragging and being generally obnoxious, it is probably a good time for a long bet.

Truth be told, I actually fear that TF will effectively eliminate the trolls that inevitably come out of the woodwork when the metals are down. They play a part in my personal gut feeling sentiment indicatory.

TF should post the TITS index, or a modified version of one more often too.


Feb 28, 2013 - 7:03pm

buying the dips

The problem with the proclamation of buy the dips is it all depends on what you want to call a dip. Day traders might look at 30 silver and say if it falls to 29, buy the dip. Did they also tell you to sell it at 30.75 to make your day's pay and then repeat the day trading?

When long term chart watchers, swing traders, say 'buy the dip' , they are looking at weekly charts , and seasonal cycles, and saying "if silver rallies from 29 to 32.75 area, watch it whipsaw back down to test the 28 area, and if it goes to 28 area .... buy that dip"

Thats what happened over the last few months. the next dip for me is around 27 - 28 area , and then 26 area, but 28 is ok to buy as well. zig zagging between 26 and 28. not good for day trading, but ok to buy the bottom zone and keep stacking.

you gotta step back and see the weekly charts and long term picture.

Feb 28, 2013 - 6:51pm

Where is the shortage?  There

Where is the shortage? There is none. See you at the blow off bottom around $1,480.

Feb 28, 2013 - 6:36pm

hagarth   you are one of the

hagarth you are one of the good guys. this is a spiritual battle, and we need to hang together.

Feb 28, 2013 - 6:23pm

Frustration setting in

My sentiment is waning with the metals. No need to provide any support to the reason why its necessary to own the stuff, heard it all before and sure will be regurgitated in many more articles to come.

It's not often that I feel the need to set my feelings to text here or anywhere else. BTD is getting old and now every time I see it I wish I had never bought any. its just the way I am FEELING. Sure I know better, and understand both arguments for and against ownership. Here is hoping most of you are not in the same mood as I.

Feb 28, 2013 - 5:43pm

Gold Price Trends

Gold price trends have been a bit unstable this year, but it will inevitably rebound in the coming weeks once bargain hunters flock into the market.

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