Dec 2, 2008... the death of the COMEX, and the death of the dollar

Safe Haven ^ | 12/05/2008 | Antal Fekete

[slnk_rules]

December 2, 2008, was a landmark in the saga of the collapsing international monetary system, yet it did not deserve to be reported in the press: gold went to backwardation for the first time ever in history. The facts are as follows: on December 2nd, at the Comex in New York, December gold futures (last delivery: December 31) were quoted at 1.98% discount to spot, while February gold futures (last delivery: February 27, 2009) were quoted at 0.14% discount to spot. (All percentages annualized.) The condition got worse on December 3rd, when the corresponding figures were 2% and 0.29%. This means that the gold basis has turned negative, and the condition of backwardation persisted for at least 48 hours.

[P.O.E.]

“Government Nipple” would be a great name for a rock band (apologies to Dave Barry)

[Atlas Sneezed]

Or it means that the folks you mention, Goldman, Credit Suisse, BOJ, China Development etc etc are all still deleveraging and know they will have to sell their gold to stay alive in this market as they unwind their leverage.

---

They must be selling paper gold, not actual gold, because there ain’t much of the hard stuff out there on the shelves these days to buy.

[P.O.E.]

The ONLY thing that has kept the dollar afloat since 1973 has been the confidence in the world's financial marketplaces that it is a safe and reliable medium of exchange

Part of the underlying assumption is the "full faith & credit" clause. On the judicial front this has been undermined by politically motivated judicial decisions. On the economic front, the government may be running out of the ability to enforce taxation at the level needed.

[slnk_rules]

So how come your description of his article made sense and mine just sounded like I got of the “uncle Ned’s trading floor?”

Thanks for doing a better job than I could in explaining this. Would you believe I thought about being a teacher once?

Guess that is a calling I am glad I missed.

[Orange1998]

Break the COMEX? They don’t take positions in commodities. Its like calling for NYSE bust.

[blam]

Baltic Dry Index Falls 93% As Shipping Rates Plunge, Signalling Global Economic Collapse

- The history and financial textbooks of the future are likely to include this chart above, or some variant thereof. The Baltic Dry Shipping Index is a composite index of bulk shipping rates for various types of cargo, mostly commodity-type cargo such as iron ore, crude oil and grains. It is considered a reliable leading economic indicator without speculative elements involved, since nobody books space on a large cargo ship if they don't have anything to ship.

Hence, the over 90% drop in this index means that the demand for shipping bulk cargo has fallen off the cliff. And the sudden drop in demand for shipping these raw materials like iron, copper and so on is signalling that the global economy is heading for collapse. It's a horrendous scenario depicted in this chart. You can imagine what the GDP figures for 2009 are going to look like.

[snip]

[Beagle8U]

Is this a good time to sell hard silver?

[blam]

Meltdown To Hit Agriculture, Food Shortage Looms

2008-11-12 18:50:00

NEW DELHI: As if the global meltdown and soaring food prices are not enough, now brace up for food shortage in the coming two years.

Even as the world is struggling to fight global market meltdown with companies sacking employees and Industries scaling down production, the world will also have to tackle food shortage and soaring prices in the coming days.

According to United Nations’ Food and Agriculture Organization, the current financial crisis will adversely affect agricultural sectors in many countries, including India and other developing countries.

[snip]

[rellimpank]

—scary—noted that on Mineweb.com a few weeks ago—

[SAJ]

It **is** an invitation to arb -- specifically, spot against some month futures. That part is obvious, and I agree with you on it. However, the conclusion you draw FROM the current spot situation is nonsense (no offense!).

First, spot p.m. mkts have for years -- decades even, going back to the old Zurich-London fixing arb (the 'cash-and-carry' arb, remember that one? if you didn't mind carrying the gold to London (or Zurich, whichever appropriate on a given date), you could make some cash (hahahaha, rimshot...) -- been subject to local distortions, esp. within the last week of a futures contract's life. Not unlike the old ''triple-witching'' Fridays in SP in the 1980s and 1990s.

Second, aberrations in spot vs near futures simply signal that someone wants a lot of gold (or silver, or whatever) or that someone wants to deliver a lot of gold (or silver, or whatever). This situation obviously changes back and forth from time to time. Ho hum.

Third, why are you looking at Feb COMEX? Dec goes off the board this month, and would be the ''normal'' (haha) contract to examine regarding deliveries.

Fourth, do you have any idea just HOW MANY times a story of COMEX default (usually on silver, btw) has made the rounds? About every 3-4 years since 1980, that's how often.

Fifth, on the radio stations I listen to, bullion dealers are (and have been for weeks now) raving about offering bullion coins at NY spot price. The usual suspects, Blanchard and the boys. Gordon Liddy is all over TV touting gold, and he wants you to buy hard metal (I forget which company he shills for). Why is this important, you ask?

Because, as Mark Twain said, history doesn't repeat itself, but it rhymes. In 1974, gold had rushed over $180/T.oz., and the ''thinking'' (haha) of all the boffins was that, with legal US gold ownership about to be restored that year, there was ''huge pent-up demand'' from the public that would drive it over $200 immediately upon US ownership of gold being re-legitimised on 1974-12-31. What happened?

April 1975 Gold opened at 195.40 on the 31st... and tanked 21 dollars/T.oz. in 3 days' time. In those days, this was a simply gigantic move for a 'new' market, and a whole bunch of retail traders got absolutely smoked and choked by it.

The moral of this part of the story is clear: when they're offering product X bigtime to little fish, either steer clear of X, or get short.

Now, as to why Goldman, MS, Barclay's, Societe Generale, Sumi and the big boys aren't doing the obvious arb here, I can't say (they don't seem to like me hanging around their trading desks...wonder why? heh heh). Most likely guess: they're still ungearing from their enormous physicals positions, and, I daresay, from their (some of them, at least) huge index swap possys too. Not sure why that would stop them from picking cherries in a good straight arb, but there are doubtless internal conditions for them of which I have no clue.

It wasn't your statements of fact with which I had a problem (other than that odd comment about backwardation), it was the conclusion you drew from them, to wit, that some sort of apolcalyptic event was coming down the pike. That's a conclusion that might be drawn, maybe, on alternate St. Swithen's Days, but there are at least a half dozen others -- a couple of them far more plausible -- that can be drawn, too.

When the whole of a precious metal market starts trading in backwardation -- not just spot vs futures, because there are too many games that are played with spot -- then I'll start listening to Tales Of The Apocalypse.

Not before.

FReegards!

[Atlas Sneezed]

Is this a good time to sell hard silver?

---

Flippantly, yes, and I’ll buy it all at spot price. (I truly will, and will arrange all security escrow, and shippping). But you can do better.

Seriously, yes, and you can sell it to a reliable trader like tulving.com
http://www.tulving.com/New%20Pages/buying_bullion_coins.html
YOU can get 25% above spot price for pre-1964 junk (90%) silver coins, for instance.

If you’re not frightened by the above, you can put all that money into SLV (ETF for silver) and own 25% more silver, if you believe that the spot and the physical market will return to normal, as they were until earlier this year.

If you’re interested in whether Silver will be rising or falling, I’d bet heavily on the rise, especially if you are looking out more than a few years We may deflate some more, but inflation is potentially big, within a few short years. My advice is to keep buying whether it rises or falls. The least likely scenario is for it to drop and stay down.

[Beagle8U]

I just have a silver pitcher, sugar bowl, and tray I was going to sell.

It was given to me and I have no worldly use for it.

It is quite heavy.

[Atlas Sneezed]

I’d sell it on eBay. If you have no experience at that, and/or are a poor photographer, find a friend who will post and sell it, and give them 10-25% of the proceeds. Or find a local shop that provides the service, and give them about 1/3 of the proceeds.

You’ll want to be sure the auction includes dimensions, GOOD photos (with good lighting), weights, and close-ups of hall marks.

[slnk_rules]

Those are good points and reasonable. Let me try and respond:
1) I agree there are always arb opportunities. From "spot to spot" from "spot to futures delivery" and from contract month to contract month and from options expiration to futures expiration. If there is a numerical anomaly, some bright person with a computer will find it an exploit it. Hooray for capitalism and all that.
2) I put a little bit more stock in the fact that close in months and spot trading at a premium to the back months is more onerous....., because I am a gold bug. I have been since I first read Gary North. I am an incorrigible gold nut with a Ron Paul smile and a Ludwig Von Mises haircut. I breathlessly scan the financials looking for evidence of the tsunami which I know HAS to come. This makes me a bit loopy and prone to hyperventilate over stuff and think it is the San Andreas fault letting go, when folks like you just dismiss it as a freight truck passing. Most of the time, you are right. I know that, and have learned to laugh at myself. That doesnt' change the REASONS why I am a goldbug, though. Hard to argue with a religious conviction, isn't it (smile)?
3) Dec is really off the board now in the sense that the first notification day for deliveries has passed. I do see the contango collapse as portentous but not the big one...., yet.
4) Your numbers are off. It is closer to 1980 times in the last 3-4 years. You must not know many gold bugs. I myself have called 18 out of the last 3 recessions with great precision. However, the Hunt brother --who did not start out trying to blow up the silver market, btw. They started out with soybeans and only once they began to try and execute the corner did they find out that the position limits ran across contract months. oops! They researched the silver market better but vastly underestimated the amount of power the IBs and other shorts had to manipulate and actually change the rules in mid stream. However, watching that convinced me that the market is dirty. I have a conviction that dirty markets eventually correct by correcting themselve or by being forced to. You just need the right circumstances. The market in silver especially is very skewed and if it is forced to correct, it will be ugly. That is why I have more of my physicals in silver than gold. Thinner market, farther to run.
5) I did not know about Liddy. I don't pay much attention to the touts. I will say that if I saw gold on the cover of Newsweek, headlined in WSJ, and in documentary on 60 mins, I would think "we are probably close to a top." Once the accountants have bought in, there is no money left to push it. Fade the taxi drivers and dentists. On that, you are right.
6) I am a slobbering anti-fed hard money the end is coming loon completely apart from the data at the Comex, so I did not draw my apocalyptic scenario from that.

I do think the moon and stars are lined up right for what the gold bugs have been predicting for some time, which is a deflationary landing which will spark hyperinflation. I don't look for solid lines of demarcation between them.

Thanks for your patience in responding, though. I learn from many people here.

[dennisw]

You got that right!

[bamahead]

bookmark

[erman]

St. Swithin's day if thou dost rain

For forty days it will remain
St. Swithin's day if thou be fair
For forty days 'twill rain nae mair.

[Leisler]

I had read of that. Autos are down thirty percent. Food is production too.

[Leisler]

Did you ever wonder why they look like a big white teat?

Suck away, suck away.....

[dennisw]

I would appreciate understanding how you don’t see this in an invitation to arb, and why that is not being exploited?

http://www.cnbc.com/id/15840232?video=880574352&play=1

Even I know that. It's fear that COMEX cannot deliver because their gold warehouse is about to be raided of all its physical gold (most of which isn't there in the first place) This raid is done by demanding delivery upon the contracts expatriation and is being done by people who want physical gold without the current outrageous markup

Most of these raiders also have an ideological motivation to break open the paper gold myth. They say powerful forces are using the paper gold market to suppress the gold price. So they also benefit financially if the paper gold markets are shown to be largely bogus and their paper trades are not backed up one to one by physical gold. If they are successful there will be a worldwide scramble to find physical gold to deliver to these people.... And physical gold's price doubles (virtually) overnight

In other words today's paper gold is like a fiat currency. Today we have paper gold that is not 100% backed up by physical gold