Mish says backwardation of gold is irrelevant

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  • Mon, Dec 08, 2008 - 04:09pm

    #1
    switters

    switters

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    Mish says backwardation of gold is irrelevant

Mish challenged the notion that the recent backwardation of gold has any real significance in his blog post this morning.  Frankly, I don’t know enough about the PM/commodities market to determine who is right or wrong on this subject.

However, I do think that Mish missed an important point.  He goes on in the article to dispute the allegations being made that physical gold and silver are in short supply by suggesting that 400 oz. gold bars and 1000 oz. silver bars are still readily available.

That may be true, but the fact is that the average investor does not have $300,000 to buy precious metals with.  The average investor buys one ounce coins and perhaps 90% junk silver.  These are very difficult to obtain right now without paying a significant premium.

Mish does speculate that the reason government mints aren’t producing more small coins for these investors is simply incompetence.  They’re overwhelmed by demand and can’t keep up.  That may be true, but it doesn’t change anything for the small investor who wants to get into gold and silver.

 

 

  • Mon, Dec 08, 2008 - 05:53pm

    #2
    GDon

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    Re: Mish says backwardation of gold is irrelevant

Mish makes a habit out of critiqueing those who parent "outrageous claims", by making his own.

Gold backwardation is "irrelevant", just like the explosive rate of socialization of American banking and finance is "irrelevant", or just like the National Debt is "irrelevant", just like the explosion in Fed Reserve activity is "irrelevant", or the YOY loss of 500,000 jobs in November is "irrelevant", or on and on….

In a realm where human activity has repeated circumstances innumerable times over history, new and unprecendented events are of course, absolutely relevant.

What is less clear, is the set of conclusions which can be drawn from the unprecendented event(s).

In the case of the article which Mish refers to, one by Antal Fekete, which can be found here http://financialsense.com/editorials/fekete/2008/1205.html   , Mish dismisses Fekete’s hypothesis (that gold backwardation is essentially a signal of fiat-currency demise), by quoting an "anonymous trader friend", so that he can thereby label Fekete’s editorial and the event as "irrelevant".

Ok – that’s not analysis, Mish.

Fekete cetainly has a refined ability to offer analytical treatise from the oblique, that’s for sure.  However, his historical and academic background in the subject is substantial.

IMO, the number of unprecendented events is following the "exponential change" environment which Chris’ Crash Course sets as a theme, and gold backwardation is one of them.

What it means, no one can claim certainty on.

However, one thing is known – gold has been the optimum form of money for the extent of recorded human history – portable, scarce, divisble and durable.

To label it a "barbarous relic" was an attempt to discredit it by opinion, and not by fact.   You don’t see any of the world’s nations and their Central Banks giving the stuff away, despite their addendums to the "barbarous relic" status.

Could we state with confidence that human behavior is absolutely different in the 21st century than the 2nd, perhaps we might be able to ascribe to it’s barbarity. 

But human beings continue to behave essentially in the same manner as they did during ancient Rome, albiet with digital calculation speed and more effective weapons.

Until it gets proved otherwise, my bet is that 10,000 years of empirical evidence hasn’t disappeared, and that gold remains a symbol of earned wealth, for value-trading (i.e., money), for some time to come, and perhaps even more so in times of distress.

  • Mon, Dec 08, 2008 - 06:14pm

    #3
    switters

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    Re: Mish says backwardation of gold is irrelevant

Thanks for the great post, GDon.  For the record, Mish is long on gold so I don’t think he’d disagree with your comments on the historical (and present) value of gold.

I read Feteke’s paper and it made a lot of sense to me.  But I don’t claim to know enough about the commodities market to have a very informed opinion.

In any event, I agree that nobody – not Mish, Feteke or anyone else – can predict with certainty what will unfold.  

  • Mon, Dec 08, 2008 - 06:31pm

    #4

    Mike Pilat

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    Re: Mish says backwardation of gold is irrelevant

GDon: I’m with you on this.

 I think you touch on one very key point: human nature is pretty much static over the milleniums. Oil, airplanes, and computers seem to be completely irrelevant when considering human nature.

It is NOT different this time. Eventually, gold will win out. The real question in my mind is whether we will directly transition to gold or whether we will have some newer, uglier form of faith-based fiat in a lame attempt by the Central Bankers to maintain power and control.

I don’t know if I’d confidently say that gold backwardation certainly heralds a new regime, but at the same time, I don’t think Mish is very balanced as he says that it is all a bunch of nonsense. There is clearly a lot of attention being paid to gold, by the investment community and the Banksters. I feel the atmosphere is ripe for a spark, but it is hard to predict what the spark will be.

Mike

  • Mon, Dec 08, 2008 - 06:43pm

    #5
    gregroberts

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    Re: Mish says backwardation of gold is irrelevant

Update on earlier article…

http://www.24hgold.com/news-gold-silver-Has-the-Curtain-Fallen-on-the-Last-Contango-in-Washington-.aspx?langue=en&articleid=351483_Antal_E__Fekete

  • Mon, Dec 08, 2008 - 06:56pm

    #6

    Nichoman

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    Re: Mish says backwardation of gold is irrelevant

GDon makes several good points.   Just add volatility in numerous areas will continue if not increase as accepted assumptions, valuations and beliefs are tested by the 3 E’s in CC. 

 

Put metaphorically…the aircraft engines are sputtering and convulsing because its running out of fuel.   We the passengers are all debating why the aircraft is shuttering and lurching basd on how much we know about what could be causing the problem.

 

Nichoman

  • Mon, Dec 08, 2008 - 08:10pm

    #7
    rufus

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    Re: Mish says backwardation of gold is irrelevant

"but the fact is that the average investor does not have $300,000 to buy
precious metals with.  The average investor buys one ounce coins and
perhaps 90% junk silver.  These are very difficult to obtain right now
without paying a significant premium."

 Switters, it’s true that bullion ounce coins are high in demand and difficult to get. But they also make gold one ounce bars and gram bars which are not so hard to get. You don’t need to be a millionare to buy gold or silver bars at this time

  • Mon, Dec 08, 2008 - 09:32pm

    #8
    hazak

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    Re: Mish says backwardation of gold is irrelevant

I would actually agree with the assumption that China will begin to look to it’s domestic markets and those of it’s trading partners in the same hemispere.  Being a pupil of the Schiff, Faber, Rogers school of thought, I would have to say that as the dollar tips over, off of this deleveraging orgy, the American market will become less and less appealling.  When will this happen?  I don’t know, and if I did I wouldn’t be scrounging around up here in chilly western New York looking for gold and silver.

  • Mon, Dec 08, 2008 - 10:44pm

    #9

    KKPSTEIN

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    Re: Mish says backwardation of gold is irrelevant

G Don,

I couldn’t agree with you more!  Further to that, what about the premiums?  The premiums being charged on gold/silver coinage right now are outrageously high.  In Japan, for example you can’t get silver coins for under $20.00 USD per oz, even though the spot price hasn’t been above $10.00 USD for weeks now.  With the demand and the premiums going up and the supply going down, coupled with the knowledge of the Crash Course (fiat currency to collapse), it doesn’t take an economist to speculate what is going to happen with gold.  It’s just a matter of when.   SHAMELESS PLUG:  Go to   http://www.savingsingold.sponsordaddy.com/myopportunity.html     to find out how to easily buy gold coinage or learn how to get involved in running your own gold store.

 

  • Mon, Dec 08, 2008 - 11:34pm

    #10
    jdownie

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    Re: Mish says backwardation of gold is irrelevant

Mish is an idiot.

Gold and silver are not just commodities, they are money. 

The point has been reached where owners of money are no longer willing to exchange it for promises to pay money (futures), even at a discount i.e. backwardation. This will soon enough move to owners of money no longer being willing to exchange it for promises to pay nothing i.e. dollars.

THE DOLLAR IS NOT MONEY PEOPLE, it is a bastardised promissory note of the government. 

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