Friday, Jan 09, 2009
Very good explanation of gold backwardation
Market Sceptics: Gold Backwardation that shook World
This article explains gold backwardation in a very good, albeit somewhat scary way. The main idea is of the carrying cost. It costs money to hold gold(vault, security etc) therefore the futures price is inevitably larger than the spot price. The spot price essentially does any collapsing necessary. However, at the moment the holders of gold are prepared to accept the "carrying cost" as their personal cost to remain in possession. Essentially they believe gold will be unavailable soon. But, I am coming to believe that all savers are deluding themselves in their attempts to maintain savings value. There is no way out. Gold will fall in real terms as the various economies fall. Maybe it is the -last- safe resort, but that doesn't make it safe.
12 Comments
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1. greytornado said...
It is getting difficult to find gold for sale - this is a fact - phone up one of the London Bullion Dealers and enquire as to the availability of Krugs, Sovs etc. As regards gold going down in value - the truth to a large degree, is that gold stays much the same over the centuries. Even if the value of your gold money went down, you have still got your gold, unlike a paper share certificate or the pretty coloured paper in your wallet....................It is unlikely that gold will go down in view of what is now playing out. Quite the reverse in fact. It is a very interesting subject area - worth reading up & research if you are interested.
2. drewster said...
Have you guys read this?
Telegraph: Merrill Lynch says rich turning to gold bars for safety (by Ambrose Evans-Pritchard, 10:32AM GMT 09 Jan 2009)
Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or "paper" proxies.
3. stillthinking said...
Probably there is a real separation between paper and physical gold. But, if all currencies are losing value, and gold is an alternative currency, then gold will also lose value.
If anybody has the conviction that currencies are going to collapse then they should buy property now irrespective of price. The world is still in deflation, and the worst of the deflation (the defaults) are going to come in 2009. The problem with gold, is that it lacks "energy", as in if the sh*t does hit the fan, nobody will want any. Debt at least is backed up by some poor miserable sod trying to keep a roof over his families head.
This article made the point that 30% of the worlds gold flowed into America, essentially because of WW2. I doubt personally that all that much left the US. Maybe this is something we will read about soon. The US being pressured to settle in gold. Who knows? I remember GB a while ago attempting to persuade other countries to dump gold, one or two years ago, just after the Brown bottom. I thought at the time he was just trying to cover up what was an obvious mistake, but maybe there was a mistaken plan as well.
If you buy gold with your savings you are taking a risk and speculating. Personally I think the yen is probably the best bet.
On the other hand, this does rather make it clear how stressed the situation is. The US has Obama, we still have GB. You may not know where to go but surely we all know where to leave.
One for the gold bugs !!
4. stillthinking said...
That is a completely fictitious slip of the keyboard. The US isn't being pressured to settle in gold. It just occurred to me that they might be. But of course no country wants gold currency.
5. crunchy said...
2. drewster
The fleecing will continue then. Poor things.
Gold is a heavy metal. lol Best to have a "quick" exit when needed!
6. crunchy said...
"People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs,"
Oh dear. ETF is the best way to go.
As I said earlier.
7. Jim said...
The gullotine has started to come down on the US$ and it's not stoppable.
Now we have an escalating war in the Middle East.
These events are connected.
8. Jim said...
crunchy, we live in a madoff economy. GLD and other joint depositories of gold will be under enormous pressure to default and let the owners of the ETF shares hold the bag. Let them sue for the gold. They won’t get it: their contracts give them no right to physical gold. They will get small change, in paper. The principals will cut up the gold pie among themselves. No crumbs will trickle down to shareholders.
9. hpwatcher said...
It's not a question of what is ''safe'' but what is least unsafe. Gold, I would say is the least unsafe at the moment.....if you can actually find some to buy.
10. beartil2010 said...
You can get physical gold ETFs...
11. mountain goat said...
Beartil2010 - You can get physical gold ETFs...
Yes I think the whole "don't trust paper gold" thing is exaggerated. It does make sense coming from gold bugs because they like gold as safe haven from fiat money collapse. Physical gold and silver have no counter party risk but I am quite happy also holding paper gold as an investment rather than safe haven to Armageddon.
12. Ho said...
check your grammar