I don’t understand. Spot gold Friday afternoon was trading 15 PREMIUM to next mos futures. This is a classical arb situation. Ditto for silver. It is trading 13 cents premium to the futures. You also have a suppression of the basis in the back months relative to the front end, which as you know, is a classic spread invite.
I have a great deal of respect for you SAJ. You clearly know a great deal more about the markets and the intricacies of finance than me. My remark to some guy who asked me what the spring planting numbers were was “what’s a ‘spring planting?’ the bid is a quarter, offer the gutters, nickel off the hi of the day and we are long term bullish. As far as anything else goes, we could be trading hubcaps down here and I would not know the difference.”
I would appreciate understanding how you don’t see this in an invitation to arb, and why that is not being exploited?
Thanks in advance
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!
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