Gold is the world’s oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.
of course the title of this article refers to the gold bull market is over, or that their stocks are being consumed at a rate that tend to disappear, for practical purposes, from the face of the Earth (as indeed, does occur in the case of silver for its growing industrial uses).
Instead, we refer to a phenomenon that, as secret, running between the community informed investors in precious metals: gold and silver, the real money is “disappearing” mysterious and constantly tangible market.
This act of “disappearance” has nothing to do with magic, but with the knowledge or intuition of investors, that the height of the crisis that began in 2008 has not been seen, and every day the risk of breach them in delivering their treasure, is larger.
This phenomenon is expressed unambiguously in something known as“backwardation” , and is appearing in the gold market, with a tendency to become permanent.
For a very simplified explanation of what this English word means, and more importantly, the consequences of his tenure, it is appropriate to begin by talking about its opposite, the “contango” .
This brings us back to “normal” presented in the market: the spot price of a commodity such as gold ( spot ), the immediate delivery, is lower compared to its price in the futures contract.
The differential is a function of the cost of making that purchase financing on the market today spot .
As both the cash and gold can be either given as borrowed, arithmetic will always be a difference between the interest rates that can be obtained for them.
Thus, both the holder of gold as the dollars in this case, could make a return for lending their resources.
If, for example, in the period of the futures contract, my dollars will earn 1% yield, and the gold lender could get a rate of 0.25%, it is expected that I have to pay in compensation 0.75% on the price spot if you want the metal offers.
Otherwise, the seller would prefer to sell their gold and dollars and lay himself for the expected gain and complete.Obviously, that 0.75% will decrease as you near the end of the contract.
By pure arithmetic, while the dollar interest rates are higher than those of gold loans, you’re in “contango” , because the futures price is above the spot: the interest rate differential will be positive and curve upward.If the opposite happens, and the price spot is higher than your future, you are in”backwardation”.
The question is, why? The answer is simple,