by Keith Weiner, Acting Man:

Waiting for Permanent Backwardation
The price of gold dropped 9 bucks, while that of silver rose 3 cents. Readers often ask us if permanent backwardation (when gold withdraws its bid on the dollar) is still coming. We say it is certain (unless we can avert it by offering interest on gold at large scale). They ask is it imminent, and we think this is with a mixture of fear and longing for a higher gold price.

We say well yeah that will bring a much higher gold price (perhaps it will hit some of the gold bug predictions, or perhaps it will go off the board before getting that high) but be careful what you wish for. And it’s not imminent. We will have a graph below that gives it some perspective.

In the meantime, we all watch the price of gold and maybe trade it when there’s a clear opportunity. Speaking of which, we will show the only true picture of the fundamentals of supply and demand in gold.

Fundamental Developments
First, here is the chart of the prices of gold and silver.

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). It fell this week.

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

The price of gold fell slightly (which means the dollar rose, as measured in gold). And with the price drop comes an increase in scarcity (i.e. the co-basis, the red line). Alas, this is just the near contract which is already under selling pressure as it expires in a few weeks. Farther contracts do not show an increase in scarcity, but a slight decrease (not a sign of imminent backwardation).

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