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http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/4/21_Gold_Market_Now_Seeing_Deepest_Backwardation_In_8_Months%21.html

As global markets continue to see some wild trading, today James Turk told King World News that the gold market is now seeing the deepest backwardation in 8 months. This is one of Turk’s most important interviews ever because it exposes just how phony the paper gold and silver markets have become. Turk also discussed how this historic backwardation will be resolved in this powerful and timely interview.




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April 21, 2014

Turk: “Trading in the precious metals today, Eric, was of little consequence. The reason of course is that London and most other markets where physical metal trades were closed because of the Easter holiday. So basically today was a free hand for those paper-shorts who are back-stopped by the central planners waging a war against gold. Thus the shorts could pretty much move the market anywhere they wanted, and they did.

Continue reading the James Turk interview below...



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“First, they ran gold up to $1302 to sell into the buy-stops they triggered there, and then ran it down to $1282 to buy into the sell stops they triggered there, clipping a quick $20 per ounce -- and I do mean quick. It all happened in a couple of hours, during the time of the day that is the most illiquid.

Their aim was keep gold below $1300, while profiting from cleaning out the stop points both above and below the recent price range. Their aim for silver was to keep it as low as possible because the May options on the Comex and over-the-counter market will be expiring over the next few days.

There is a clear pattern over the years how the shorts push precious metal prices lower going into option expiry so that as many calls as possible expire out of the money, enabling the shorts to take in the entire premium they received for writing calls. Just a couple of days ago it looked like the $20 calls would expire in the money. It doesn’t look that way now, and perhaps even the $19.50 calls will expire worthless.

This downside pressure of course is temporary. Gold closed in London before the Easter holiday in the deepest backwardation since last August, which for the first time this year has now stretched out to 6 months. Though silver forward rates are no longer reported by the LBMA, it too closed last week in backwardation.

So the supply of physical gold and silver remains tight, which, of course, is the important point. The paper shorts can sell all the paper they want, but the promises they offer for future delivery are a totally different asset than actually owning physical metal.

We need to remember, Eric, that in order to pursue their zero interest rate policy (ZIRP), gold interest rates must also be manipulated just like currency interest rates. In a ZIRP environment, gold interest rates have to fall below interest rates that would normally prevail in a free-market (i.e., one unfettered by government intervention).

If central planners did not intervene in the gold market to keep gold interest rates low, gold would be in backwardation and no central banker wants that to happen because it implies that people would rather hold gold than national currencies. Backwardation is always arbitraged away in unfettered markets to earn a profit in three ways:

One - by selling physical metal today and buying back it in the future at a lower price.

Two - Avoiding the storage fees on the physical metal you sold, and

Three - earning interest on the proceeds of your sale until you need to spend the money to take delivery again in the future.

To eliminate any backwardation is one of the reasons central planners intervene in the gold market.

Of course backwardation has been happening for months now, but not because gold stopped being money. A gold backwardation for one or two days as occurred at the lows in gold in 1999 and 2008 is exceptional. But the prolonged backwardation that we have seen for several months now is irrational, which is why I have chosen “The Money Bubble” as the title of my new book.

Mainstream thinking about money today is no different than the misguided mainstream thinking and erroneous conventional wisdom that prevailed during the dot-com bubble and every other bubble. In other words, reality has not changed, and months of backwardation is not a “new normal.” Rather, central bankers’ worst nightmare has arrived. The strong hands who own physical gold do indeed choose to own physical precious metal rather than profit from the arbitrage.

These strong hands cannot be sufficiently enticed by the profit of the arbitrage to sell their metal and hold a national currency along with some promise for future delivery. So it seems we are getting close to the moment when the central planners can no longer keep gold at these low prices.

But the important question remains unanswered: How much longer can the central planners hold out before gold zooms higher? Unfortunately, no one knows. And central planners can do irrational things.

For example, the US government dishoarded 10,000 tons of gold from Ft Knox in the 1960’s in a vain attempt to keep gold at what was then an outrageously undervalued price of $35 per ounce. But the US does not have a monopoly on silly decisions. The Soviets sold off two-thirds of their gold reserve in 1990 in an attempt to keep their centrally planned economy from imploding. But as we all know, it imploded anyway.

So the bottom line is that we have to look beyond the stupid actions of central planners, and focus on value. Clearly, both gold and silver remain undervalued, and months of backwardation show that central planners are fighting a losing war that is ready to blow up at any time.”