Wednesday, July 24, 2013

"Gold Backwardation Conspiracy Nonsense"

Kitco spot $1334.20 down $13.50; front futures $1338.70 up $3.50.

Attentive (and possibly deranged) readers will note the stylistic similarity of our current backwardation obsession to the work of an early Climateer Line of the Day award winner:
Dead zones are all the rage! Here's my latest dead zone story.
That's all I do now: I've got the dead zone beat....
-the Washington Post's Joel Achenbach  reprised in our "Risk: "Under the world's greatest cities, deadly plates" post.

"Backwardation, it's all the rage! That's all I do now..."

Okay, maybe not.

From Mish's Global Economic Trend Analysis
Business Insider says "Traders Are Talking About A Gold Conspiracy Theory And There's Evidence To Back It Up"
No discussion about gold is complete without a good conspiracy theory. While most theories are easily dismissed, some stay around for a while due to a confluence of circumstantial evidence surrounding it. Wall Street veteran Art Cashin addresses one such theory in this morning’s Cashin’s Comments.

From Cashin:

All That Glitters Is Not Arbitrage – Monday, spot gold spiked up $45 and the media pundits pointed to things from China to the FOMC. While all the cited may have been factors, veteran traders saw the bulk of the move resting in a conspiracy story.

In my mid-day email to friends I had noted this:

Gold soars as NYT story on metal warehouses fans flames of conspiracy theorists that gold warehouse stores have been “lent” out. That theory also aided by backwardation (spot price far above near future).....

Unfortunately, we are not sophisticated enough to answer these questions.  But email us at if you can.
Email is on the Way

Consider what follows as my email to Business Insider and Cashen.

People like conspiracy theories for two reasons:
  1. Conspiracy theories are sexy and fun to discuss
  2. Traders want to blame someone else for their poor trades.
Simply put, if gold goes up, it's because it should (and the traders are brilliant for understanding that). If gold gold down, it must be a conspiracy (because the traders cannot possibly be wrong).

Investigating Backwardation

My friend Nick at Sharelynx Gold emailed me earlier today regarding the alleged backwardation in gold.

Nick writes....
Hello Mish

The attached chart shows gold's current spread band of all the active futures vs the spot price of gold. Shown in the top window are the active futures. Shown in the bottom window is the Last/Near Future spread. (this needs to go below zero for a full inversion)
Gold Futures Spread

click on any chart for sharper image

Gold Chat

Byron at Gold Chat posts the following amusing set of charts that may be easier to understand....MORE
On the other hand the massive WTI backwardation....