There are currently stories circulating among gold mining executives, fund managers and other gold market participants that there is a backwardation of the London gold forward market, reports New York-based research and consulting firm CPM Group.

The firm says the rumour is being spread by unspecified groups that market physical gold to investors based on “conspiracy theories and fear”, the suggestion being that the physical gold market is so tight that traders are having to pay a premium for spot gold over gold for future delivery.

The CPM says that the problem with this theory is that no such backwardation exists.

“These stories and rumours are part of a broader effort by gold promoters to inaccurately lead investors into thinking that the gold market is tight and prices are about to explode to the upside.”

The firm notes that actual London Bullion Market (LBM) gold forward prices based on real transactions have never really been published. These are principal-to-principal transactions between banks and customers or counterparties.

Therefore, they have always varied – in part, depending on the customer. There has been published data on forwards, but these numbers were indicative forward quotes calculated using the Libor interest rate rather than being actual quotes at which trades had been made.

CPM points out that these indicative quotes widely misrepresented actual forward markets and led to the quotes being suspended on January 30.

Since 2009, US futures company CME Group has operated a system allowing for LBM over-the-counter (OTC) forwards to be cleared through the CME clearinghouse, and publishes a daily curve of cleared OTC London gold forwards.

“Few LBM forwards are actually cleared by CME’s contract, but the CME gathers actual forward quotes from banks and dealers every day and publishes a forward price curve based on these actual quotes, in contrast to the indicative quotes elsewhere. These quotes show a clear positive forward carry, or contango.”

CPM says that part of the problem was that the indicative quotes were “so clearly” not representative of the market that regulators asked London-based banks to fix the quote system.

The firm points out that rather than fix the forward quoting system, banks chose to discontinue releasing such data as of the end of January. This took the forward market from being “grossly misrepresented” to being totally opaque.

CPM says that the only way a producer, user, investor, or other market participant can learn what an actual forward price is is to ask one or more banks making forward quotes.

Additionally, the firm refutes rumours circulating in the gold market that the world’s largest physical futures trading exchange, Comex, does not have enough gold in its inventories to meet hypothetical demand and that the ratio of gold in Comex depositories available to meet Comex delivery specifications is at a perilously low level.

CPM says that, while the percentage of Comex gold open interest covered by total Comex reported stocks has fallen over the past 18 months, it remains “very high” by historical standards and presents no perceptible risk of imminent problems with deliveries.

The firm stresses that there is no crisis brewing on Comex and points out that, in fact, by most measures Comex is better stocked now than it was for most of its first 30 years of the existence.

CPM says that such “spurious” rumours infecting the gold market, or at least the periphery commentary related to the gold market, are not surprising or new.

“The same purveyors of scary but false warnings used the same bogus argument in August 2013. CPM wrote about that ploy in a market commentary entitled ‘Much Ado About Nothing’ on August 19, 2013,” the firm points out.

CPM states that it views gold as “an excellent investment” at current prices and market conditions, on a long-term basis.

“We do not expect prices to rise sharply for a couple of years, however, since we do not see any exogenous economic or political problems becoming so threatening as to stimulate sharp increases in investment demand until late 2017 at least.

“With gold and other precious metals prices having fallen in recent months and remaining weak, a few gold marketing groups have become more desperate about convincing investors to keep buying gold, resorting to misleading market commentary suggesting that gold prices are about to explode sharply higher owing to fundamental tightness. This is one of many false stories being used to try to bull the market higher,” CPM concludes.