‘Gold spot price higher than the metal’s future price’
Backwardation of the gold forward market is occurring, says precious metals trader GoldMoney founder James Turk.
Backwardation occurs when the market conditions are at a point where the price of a forward or future contract is trading below the expected spot price at contract maturity.
Turk’s comments are in response to claims made in a report published by New York-based research and consulting firm CPM Group, entitled ‘Comex Is Not Running Out Of Gold, Still’, in September. It states that backwardation is not occurring.
The report states: “Stories and rumours [of gold backwardation] 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.”
However, Turk tells Mining Weekly that the world’s largest physical futures trading exchange, Comex, spot gold contract for October 2015 settled – as at October 27, 2015 – at $1 177.1, which is $1 above the December 2015 contract price of $1 176.1. Therefore, he says it is “self-evident” that gold is indeed in backwardation.
“Comex has been repeatedly reporting some backwardation for several weeks, during which time there have been huge withdrawals of physical metal from the registered gold stock available for delivery against Comex contracts. These two events are interrelated,” Turk asserts.
He says that the owners of the physical metal that is being delivered under the spot contract are not going to accept a below-market rate for the metal they are selling.
“They are only going to accept the true spot price, which Comex reports is a higher price than the December contract, which is backwardation,” Turk concludes.
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