Unbeatable
Big Eyed Bug
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...To further support our price manipulation hypothesis, we overlay the 1-month GOFO rate with days where the gold price suffered significant declines (more than 3%) in Figure 4. Unless it is the actual price drop that sparks all this increased demand, it seems counterintuitive that the gold price would decline precipitously before large declines in the GOFO rate, which implies increased demand for physical gold from bullion dealers.
It now seems that bullion banks are in desperate need of bullion, as evidenced by the increasingly negative GOFO rates we are seeing (Figure 4 below). Remember that a negative GOFO rate signifies that the bullion banks are ready to pay holders of physical to lease their gold, in this case for a month...In our view, the bullion banks’ fractional gold deposit system is testing its limits. Too much paper gold exists for the amount of physical gold available. Demand from emerging markets, who do not settle for paper gold, has perturbed the status quo.
What is their best/another option at moment?
Traders Are Talking About A Gold Conspiracy Theory And There's Evidence To Back It Up
For several months "physical gold" (bracelets, coins and small bars) have seen near riotous demand with long lines stretching into the streets. At the same time "paper gold" (ETF's, futures and nominal spot) have seen sharply falling prices. That dichotomy has sparked more than a few conspiracy theories.
A key support of these theories is the backwardation in gold – the spot price is higher than the near future contract. That's unusual. It could normally be resolved by selling spot gold and buying the cheaper future one month out. Thus, in a month, you would reap an apparent locked-in, riskless profit. Yet no one seems to be doing it. Is there doubt that there is gold in storage that will be deliverable in a month? So, the theorists assume.
Is there something the traders know that we don't know? Are there other forces preventing the arb opportunity from being arbed away?
It's amazing how long these rates have been negative. Based upon the news/commentary when this first started, I don't believe rates have ever stayed negative this many consecutive days.
One has to take ZIRP into account, though. Negative rates are more likely if fiat interest rates are close to zero, too.
31-Jul-13 -0.04833 -0.03333 -0.01167 0.06167 0.18000
01-Aug-13 -0.05667 -0.03333 -0.01333 0.05833 0.18000
02-Aug-13 -0.06000 -0.05167 -0.01833 0.05833 0.18333
05-Aug-13 -0.07167 -0.05667 -0.04000 0.05000 0.17000
06-Aug-13 -0.08833 -0.08000 -0.06333 0.02000 0.15667
Definitely a pattern of worsening rates developing.
This is like that scene in Matrix where the girl in the red dress walks by......
A dystopian future in which reality as perceived by most humans is actually a simulated reality called "the Matrix", created... to subdue the human population.
Morpheus: The Matrix is everywhere. It is all around us. You can see it when you turn on your television. You can feel it when you go to work... when you pay your taxes.
It is the world that has been pulled over your eyes to blind you from the truth.
Neo: What truth?
Morpheus: That you are a slave, Neo. Like everyone else you were born into bondage.
This is like that scene in Matrix where the girl in the red dress walks by......
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07-Aug-13 -0.11000 -0.09667 -0.08500 0.00167 0.13833
Worst 2 and 3 month rates since backwardation begun! (The 1 month was only worse on July 10th)
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What's interesting is the fact that the GOFO is indicating extreme short term shortages in bullion over in London despite the fact that India and the Muslim world has been largely dormant for the past 4 weeks with Ramadan and the Government trying to stop Indians from buying gold. Ramadan ends tonight and the primary Indian gold-buying season will start to kick in.
Another gold smackdown coming “@markknoller: Meeting with POTUS tomorrow are heads of CFPB, FHFA, the Fed, CFTC, FDIC, NCUA, the SEC & OCC
while correlation is not causation, recall what happened the last time the President, somewhat unexpectedly, met with the CEOs of all the big banks.
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Personally I don't think there is any gold price play that can stem the physical demand now.
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A significant rise in gold prices might do it. Raising prices is the normal market mechanism to control high demand is it not?
since May 2nd, holders of paper Rupee have lost 18% of their purchasing power while those that held gold instead have seen their 'wealth' appreciate 13% in local purchasing power
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During each of those two previous periods, gold was in backwardation for just a few days. In contrast, the backwardation that ended Monday prevailed for a totally unprecedented and record breaking 40 trading days. During that time, gold rose from $1,200 to over $1,430. It was a spectacular jump in price. But with gold again below $1,400, the backwardation has re-appeared.
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