Gold to Break Upside, Dollar to Break Down
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).
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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.
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Buckle up, gold bulls. Gold is about to begin a melt-up, in my humble opinion.
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Why doesn't the BOE or the Fed stockpile corn or wheat? Those are also commodities.
And why are various central banks (including China's very public statement of their intent) now purchasing more of this "commodity" rather than more dollars? When the mouth says one thing and the body does another, I watch the body "language."
What's more, i think many people holding futures contracts would love to take delivery ... does anybody here know the mechanism by which that would occur? What price do you pay? My futures account, optionsxpress.com, unfortunately does not participate in any physical delivery - at least that's what they say. It's questionable to me as to whether they truly cannot provide this .... a contract is a contract, isn't it?
IF we are to make comparisons to the backwardation of 1999, Gold did rally, but quickly lost steam only a month later.
Any clues to what might take place this time around?
Dollar collapsing? Dont buy that just YET-- I understand the reasons why it could, but no doubt there are many other currencies in the world under the same pressures.
Some of the weird observations from Friday: Platinum now just $20 premium to gold, silver did little to follow (though curious to see monday's open! (could it really be that easy of a trade?)), copper flat, and palladium and rhodium fell!
I would appreciate opposing views, in case mine is too simplistic.
