Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Gold to Break Upside, Dollar to Break Down


Yellow metal will spike after going into backwardation.

Just to update everyone on gold. Last week, I noted that the 3M GOFO was about to go negative, indicating that gold was moving into backwardation.

Unlike other commodities, gold very rarely goes into backwardation: This only occurs when 1) The market fears a collapse in the currency, and/or 2) The market is worried about counterparties making good on their promise to deliver gold (which was briefly the case in 1999, when the Washington Agreement was announced and shorts were squeezed).

This morning, gold officially went into backwardation for the first time since the announcement of the Washington Agreement in 1999, which sent gold shorts scrambling to find physical metal after the world's major central banks agreed to limit sales of gold going forward and ending the one-way trade to the downside in gold that had been in place in the late 1990s.

We know gold is now in backwardation because the gold forward offerred rate (GOFO) has now gone negative. The 3M GOFO has fallen 12 basis points to -0.07%, and the 1M GOFO has fallen 20 basis points to -0.1167% (see the chart of 3M GOFO below).

Click to enlarge

It's no coincidence that gold appears to be breaking out to the upside this morning, and likely indicates that the US Dollar Index will soon be cracking to the downside.

Click to enlarge

Click to enlarge

Buckle up, gold bulls. Gold is about to begin a melt-up, in my humble opinion.
Long gold, gold shares

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos