Skip to content


Chavez Gold Action Leads to Backwardation, Short Squeeze and ‘Havoc’ Concerns

Gold Core
August 19, 2011

All major currencies have fallen sharply against gold and silver again today with gold reaching new record nominal highs in Canadian and New Zealand dollars, in sterling, in euros and of course in dollars as turmoil continues in global markets.

In volatile trade, gold is down 1% from new record highs and is trading at USD 1,860.10, EUR 1,300.40, GBP 1,126.40, CHF 1,470.90, and JPY 142,414 per ounce and has risen some 2% in all currencies. Silver has surged by nearly 3% in all major currencies.

Chavez Gold Action Leads to Backwardation, Short Squeeze and ‘Havoc’ Concerns goldcore bloomberg chart1 19 08 11
Cross Currency Table

The London AM fix was a third consecutive record nominal high in US dollars. Gold’s London AM fix this morning was USD 1,862, EUR 1,299.28, GBP 1,126.91 per ounce (from yesterday’s USD 1,794.50, EUR 1,246.44, GBP 1,087.12 per ounce).

Markets continue to assess the ramifications of Venezuela deciding to repatriate their large gold reserves from London to Caracas. Their reserves are large in gold tonnage terms but small in dollar terms.

Venezuela’s central bank is the world’s 15th largest holder of gold, with 365.8 tonnes, of which some 211 tonnes, worth $12.3bn are held in London with the Bank of England and JP Morgan, Barclays, and Bank Of Nova Scotia.

Many analysts and the Gold Anti-Trust Action Committee (GATA) have long contended that much of the central bank gold reserves have been leased out by bullion banks and that in the event of central banks choosing to repatriate their bullion, significant supply issues could develop which would lead to a short squeeze and a parabolic increases in prices.

The concern is that other central banks concerned about dollar and currency debasement and expropriation of their gold reserves by embattled large debtor sovereign nations may follow suit.

A short squeeze is quite likely given the scale of global investor and central bank demand.

Chavez Gold Action Leads to Backwardation, Short Squeeze and ‘Havoc’ Concerns goldcore bloomberg chart2 19 08 11
GOLD SPOT $/OZ

Already, there is a small degree of backwardation developing in the gold market with certain near term futures contracts now trading at higher prices than longer term contracts. The near term August ’11 contract was trading at $1,871.40/oz while June ’12 contract is trading at $1,870/oz (12:16 GMT). The spread between spot and longer term contracts has fallen suggesting that gold may soon join silver in backwardation.

Silver has been in backwardation for seven months now and backwardation appears to be deepening again. This morning the September ‘11 contract is trading at $41.41 while December ‘12 is trading at $40.65.

The possibility of backwardation in gold suggests that major investors are concerned about the supply of physical gold. Buyers are concerned about securing supply in the future and are willing to pay a premium for spot or immediate delivery.

It could indicate that the short squeeze anticipated by many is taking place and we could see a sharp upward move in gold prices.

Chavez Gold Action Leads to Backwardation, Short Squeeze and ‘Havoc’ Concerns goldcore bloomberg chart3 19 08 11
XAU-GBP EXCHANGE RATE

This would not be surprising considering the very small size of the physical bullion markets versus the size of the overall financial and currency markets and considering the high demand coming from investors and central banks globally.

It is worth remembering what happened when silver went into backwardation some months ago. It led to a price surge from $30/oz to over $50/oz in 10 weeks.

Backwardation rarely happens in the gold and silver bullion markets. Since gold futures first started to be traded in 1972 (on the Winnipeg Commodity Exchange), there have only been momentary backwardations of a few hours.

It suggests that larger gold bars are difficult to acquire in volume and that the physical market is becoming stressed and less liquid.

Backwardation can end in default, failure to make delivery and in sharply higher prices. A default on the COMEX would have important ramifications for the dollar and could see sharp selling of the dollar and sharp falls on global markets.

Gold backwardation has been warned of by newsletter writer Denis Gartman overnight. He said that if Chavez  “does push” for repatriation of $11 billion of gold reserves held in developed nations’ institutions it could lead to backwardation which would wreak ‘havoc’.

Investors should buy “nearer gold” and sell deferred bullion futures, he wrote. October and December futures will trade to premium over February and beyond in this case, Gartman wrote.

Meanwhile, in another sign of gold experiencing a near perfect storm, UBS have said that macro hedge funds were noted buyers and may also have dominated demand during yesterday’s Comex sweeps. They said that the funds may have been waiting for a correction to buy but due to concerns of the market moving away from them decided to buy yesterday.

“If participation from the macro hedge fund community has only just started to accelerate, this adds a new dynamic to the gold market.”

In normal financial and economic times, gold would be considered overvalued but we are far from that today and gold is experiencing a near perfect storm which could propel prices higher.

JP Morgan’s call for $2,500 gold by year end does not sound that outlandish given the fraught financial, economic and monetary conditions today.

A correction remains a real possibility but buying and holding bullion remains the best strategy in today’s volatile markets.

Cost averaging (dollar, euro, pound) is worth considering after the recent price move.

For the latest news and commentary on gold and financial markets please follow us on Twitter.

Related Posts with Thumbnails

Posted in Finance & Economics.

Tagged with , , , , .

Support #altnews & keep Dark Politricks alive

Remember I told you over 5 years ago that they would be trying to shut down sites and YouTube channels that are not promoting the "Official" view. Well it's happening big time. Peoples Channels get no money from YouTube any more and Google is being fishy with their AdSense giving money for some clicks but not others. The time is here, it's not "Obama's Internet Cut Off Switch" it's "Trumps Sell Everyones Internet Dirty Laundry Garage Sale".

It's not just Google/YouTube defunding altenative chanels (mine was shut), but Facebook is also removing content, shutting pages, profiles and groups and removing funds from #altnews that way as well. I was recently kicked off FB and had a page "unpublished" with no reason given. If you don't know already all Facebooks Private Messages and Secret Groups are still analysed and checked for words related to drugs, sex, war etc against their own TOS. Personally IU know there are undercover Irish police moving from group to group cloning peoples accounts and getting people booted. Worse than that I know people in court at the moment for the content they had on their secret private group. Use Telegrams secret chat mode to chat on, or if you prefer if you need to or buy a dumb phone with nothing for the NSA to hack into if you are that paranoid.

So if your not supporting this site already which brings you news from the Left to the Right (really the same war mongering bollox) then I could do with some. Even if it's just £5 or tick the monthly subscription box it will be much appreciated. Read on to find out why/

Why?

Any support to keep this site would be appreciated. You could set up a monthly subscription for £2 like some people do or you could pay a one off donation as a gift.
I am not asking you to pay me for other people's articles, this is a clearing house as well as place to put my own views out into the world. I am asking for help to write more articles like my recent
false flag gas attack to get WWIII started in Syria, and Trump away from Putin. Hopefully a few missiles won't mean a WikiLeaks release of that infamous video Trump apparently made in a Russian bedroom with Prostitutes. Also please note that this article was written just an hour after the papers came out, and I always come back and update them.

If you want to read JUST my own articles then use the top menu I have written hundreds of articles for this site and I host numerous amounts of material that has seen me the victim of hacks, DOS plus I have been kicked off multiple hosting companies, free blogging sites, and I have even had threats to cease and desist from the US armed forces. Therefore I have to pay for my own server which is NOT cheap. The more people who read these article on this site the more it costs me so some support would be much appreciated.

I have backups of removed reports shown, then taken down after pressure, that show collusion between nations and the media. I have the full redacted 28/29 pages from the 9.11 commission on the site which seems to have been forgotten about as we help Saudi Arabia bomb Yemeni kids hiding in the rubble with white phosphorus, an illegal weaapon. One that the Israeli's even used when they bombed the UN compound in Gaza during Operation Cast Lead. We complain about Syrian troops (US Controlled ISIS) using chemical weapons to kill "beautiful babies". I suppose all those babies we kill in Iraq, Yemen, Somalia and Syria are just not beautiful enough for Trumps beautiful baby ratio. Plus we kill about 100 times as many as ISIS or the Syrian army have managed by a factor of about 1000 to 1.

I also have a backup of the FOX News series that looked into Israeli connections to 9.11. Obviously FOX removed that as soon as AIPAC, ADL and the rest of the Hasbra brigade protested.

I also have a copy of the the original Liberal Democrats Freedom Bill which was quickly and quietly removed from their site once they enacted and replaced with some watered down rubbish instead once they got into power. No change to police tactics, protesting or our unfair extradition treaty with the USA but we did get a stop to being clamped on private land instead of the mny great ideas in the original.

So ANY support to keep this site running would be much appreciated! I don't have much money after leaving my job and it is a choice between shutting the server or selling the domain or paying a lot of money just so I can show this material. Material like the FSB Bombings that put Putin in power or the Google no 1 spot when you search for protecting yourself from UK Police with "how to give a no comment interview". If you see any adverts that interest you then please visit them as it helps me without you even needing to give me any money. A few clicks per visit is all it takes to help keep the servers running and #altnews alive!

However if you don't want to use the very obvious and cost free ways (to you) to help the site and keep me writing for it then please consider making a small donation. Especially if you have a few quid sitting in your PayPal account doing nothing useful. Why not do a monthly subscription for less money instead. Will you really notice £5 a month?


0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.



Some HTML is OK

or, reply to this post via trackback.



css.php