Infographics: The History of Metals

From Visual Capitalist (hat zero hedge)

Courtesy of: Visual Capitalist

Millionaire’s Portfolio: Collectibles are the Rage

From the CNBC

Collectibles are all the rage. From the $120 million hammer price for the pastel of Edvard Munch's "The Scream" to the run-up in prices for diamonds, wine and antique cars, the collectibles market (or “passion investments” or “treasure assets”) is booming on the back of demand from wealthy investors.

For the rich, Burgundy and sapphire are the new black.

But financial expectations for collectibles may be surpassing reality.

A new report from Barclays Wealth shows that among global investors with more than $1.5 million in investible assets, collectibles and precious metals now account for 9.6 percent of their total wealth. The numbers are even higher in the United Arab Emirates (18 percent) and China (17 percent).

As Barclays points out, wealthy investors like collectibles because they want “tangible, scarce and non-fungible investments" that “could provide a stable store of value in uncertain times.”

Yet Barclays says that “the world of collectibles thrives on fairy tales” like "The Scream" sale, calling collectibles markets “riddled with inefficiencies, "frequently opaque and illiquid," and "extremely volatile and risky.”

Reasons for the growth of collectibles as a share of the portfolio of the millionaires, according to Barclay: Emotions, Hidden Cost, Opaque Markets, Correlation and illiquid.

Yet it would seem misguided to lump arts, wines, precious metals and jewelries as a single asset ‘collectible’ class, as the utility and reservation demand functions of these items are different.

Some of the wealthy people will buy because of aesthetics, enjoyment and or for social status.

But it isn’t a ‘fairy tale’ when wealthy investors say that they had opted for ‘collectibles’ out of “tangible, scarce and non-fungible investments" that “could provide a stable store of value in uncertain times.”

Bluntly put, 'collectibles' represents as insurance against counterparty risks and are ‘real’ assets for the millionaires.

What truly will be exposed as fairy tale are the colossal financial claims at the fractional reserve banking system. The euro debt crisis signifies an ongoing manifestation of such a process.

Thus, the increased exposures by millionaires on 'collectibles' reflect on the present economic and financial realities.

MF Global Fallout Haunts the Metal Markets

The MF Global mess continues to haunt the commodity markets. Reports suggest that MF Global could have engaged in rehypothecation or illicitly pledged collateral by their clients as collateral for its own borrowing (Wikipedia.org). And ownership issue over collateral has given way to numerous lawsuits and liquidations.

Writes Zero Hedge (bold emphasis mine)

That paper gold, in the form of electronic ones and zeros, typically used by various gold ETFs, or anything really that is a stock certificate owned by the ubiquitous Cede & Co (read about the DTCC here), is in a worst case scenario immediately null and void as it is, as noted, nothing but ones and zeros on some hard disk that can be formatted with a keystroke, has long been known, and has been the reason why the so called gold bugs have always advocated keeping ultimate wealth safeguards away from any form of counterparty risk. Which in our day and age of infinite monetary interconnections, means virtually every financial entity. After all, just ask Gerald Celente what happened to his so-called gold held at MF Global, or as it is better known now: "General Unsecured Claim", which may or may not receive a pennies on the dollar equitable treatment post liquidation. What, however, was less known is that physical gold in the hands of the very same insolvent financial syndicate of daisy-chained underfunded organizations, where the premature (or overdue) end of one now means the end of all, is also just as unsafe, if not more. Which is why we read with great distress a just broken story by Bloomberg according to which HSBC, that other great gold "depository" after JP Morgan (and the custodian of none other than GLD) is suing MG Global "to establish whether he or another person is the rightful owner of gold worth about $850,000 and silver bars underlying contracts between the brokerage and a client." The notional amount is irrelevant: it could have been $0.01 or $1 trillion: what is very much relevant however, is whether or not MF Global was rehypothecating (there is that word again), or lending, or repoing, or whatever you want to call it, that one physical asset that it should not have been transferring ownership rights to under any circumstances. Essentially, this is at the heart of the whole commingling situation: was MF Global using rehypothecated client gold to satisfy liabilities? The thought alone should send shivers up the spine of all those gold "bugs" who have been warning about precisely this for years. Because the implications could be staggering.

Probably the core primary consequence of this discovery, which obviously has a factual basis, or else it would not lead to an actual lawsuit between two "reputable" firms (aka ponzi participants), is whether gold in the GLD warehouse, supervised by HSBC, is truly theirs, or has it all been hypothecated from some other broker who never really had the asset or the liquidity, and so on in what effectively can be an infinite chain of repledging one asset to countless counterparties. Because if there is on cockroach...

Suffice to say, expect either a prompt settlement in this lawsuit, or a fervent denial by all parties involved that any gold was misplaced. Because here is the punchline: each physical gold or silver bar has a unique deisgnator that should never be replicated, yet this is precisely what happened to lead to the lawsuit! In a non-banana world, there should never be any debate over who owns a given physical asset, as replicated ownership (note - not liens) effectively means someone stole the gold (or there was counterfeiting involved) and was never caught... until MF Global finally expired of course.

Read the rest here

War on Precious Metals: Has the Eurozone been Gradually Restricting Individual Gold Purchases?

Yes says Marc Slavo of SHTF Plan

A couple of weeks ago our report that some Austrian banks had begun restricting the sale of gold and silver to 15,000 Euro (~$20,000 USD) reportedly because of money laundering issues was met with disbelief by many readers of financial news and information web sites. As we mentioned in that commentary, it is our view that governments, namely in Western nations, are making it more difficult for individuals to make gold purchases, as well as to do so anonymously.

It looks like this trend of restricting the peoples’ ability to acquire assets of real monetary value is expanding. If a recent report from France is accurate, and based on the French governments official web site it looks like it is, then as of September 1, 2011, anyone attempting to sell or purchase ferrous or non-ferrous metals, which includes gold and silver, will be required to pay for their purchase via a credit card or bank wire transfer if it exceeds 450€ (~ $600 USD):

“Here is the applicable French law via www.legifrance.gouv.fr and translated into English by Google Translate:

“Article L112-6
Amended by Law n ° 2011-900 of July 29, 2011 – art. 51 (V)

“I. Can be made in cash payment of a debt greater than an amount fixed by decree, taking into account the place of tax residence of the debtor and the professional purpose of the operation or not.

“In addition a monthly fixed by decree, the payment of salaries and wages is subject to the prohibition contained in the preceding paragraph and shall be made by check or by transfer to a bank or postal account or account held by a payment institution.

“Any transaction on the retail purchase of ferrous and non ferrous is made by crossed check, bank or postal transfer or by credit card, not the total amount of the transaction may not exceed a ceiling set by decree. Failure to comply with this requirement is punishable by a ticket for the fifth class.

“II.-I Notwithstanding, the costs of the department conceded that exceed the sum of 450 euros must be paid by bank transfer. (bold highlights original-Prudent Investor)

“III.-The preceding provisions shall not apply:

“a) For payments made by persons who are incapable of binding themselves by a check or other payment, as well as those who have no deposit account;

“b) For payments made between individuals not acting for business purposes;

“c) paying the expenses of the state and other public figures.

According to independent reports the law was passed to curb the illegal sale of stolen metals like copper, steel, etc. Given the rampant rise in thefts of these metals from telephone poles, construction sites and businesses here in the United States, we can certainly see this as a reasonable assessment for why the French passed this law.

When governments see their political privileges being eroded as a result of their own policies, the next set of actions would be to destroy any competitive threats on their monopoly franchise of money by restricting the ownership of metals.

I am reminded by the wisdom of the great F. A. Hayek who once wrote in Choice in Currency, (bold emphasis mine)

There could be no more effective check against the abuse of money by the government than if people were free to refuse any money they distrusted and to prefer money in which they had confidence. Nor could there be a stronger inducement to governments to ensure the stability of their money than the knowledge that, so long as they kept the supply below the demand for it, that demand would tend to grow. Therefore, let us deprive governments (or their monetary authorities) of all power to protect their money against competition: if they can no longer conceal that their money is becoming bad, they will have to restrict the issue…

…This was observed many times during the great inflations when even the most severe penalties threatened by governments could not prevent people from using other kinds of money; even commodities like cigarettes and bottles of brandy rather than the government money—which clearly meant that the good money was driving out the bad…

…But the malpractices of government would show themselves much more rapidly if prices rose only in terms of the money issued by it, and people would soon learn to hold the government responsible for the value of the money in which they were paid. Electronic calculators, which in seconds would give the equivalent of any price in any currency at the current rate, would soon be used everywhere. But, unless the national government all too badly mismanaged the currency it issued, it would probably be continued to be used in everyday retail transactions. What would be affected mostly would be not so much the use of money in daily payments as the willingness to hold different kinds of money. It would mainly be the tendency of all business and capital transactions rapidly to switch to a more reliable standard (and to base calculations and accounting on it) which would keep national monetary policy on the right path.

Legislative restrictions will not prevent people from switching to good money.

Has the UN’s intervention in Libya been about the Libyan Gold Dinar?, Mexico Central Bank Buys Gold

Remember when some people speculated that the Iraq war had been prompted by Saddam’s proposal to price her oil trades in Euro?

Well, here is another theory on why the UN has intervened in Libya’s civil war and wants Gaddafi ousted: the Libyan Gold Dinar.

Says the Daily Bell, (bold emphasis mine)

Some believe it [the NATO/US-led Libyan invasion] is about protecting civilians, others say it is about oil, but some are convinced intervention in Libya is all about Gaddafi's plan to introduce the gold dinar, a single African currency made from gold, a true sharing of the wealth.

Gaddafi did not give up. In the months leading up to the military intervention, he called on African and Muslim nations to join together to create this new currency that would rival the dollar and euro. They would sell oil and other resources around the world only for gold dinars.

It is an idea that would shift the economic balance of the world.

"If Gaddafi had an intent to try to re-price his oil or whatever else the country was selling on the global market and accept something else as a currency or maybe launch a gold dinar currency, any move such as that would certainly not be welcomed by the power elite today, who are responsible for controlling the world's central banks," says Anthony Wile, founder and Chief Editor of the Daily Bell.

"So yes, that would certainly be something that would cause his immediate dismissal and the need for other reasons to be brought forward from moving him from power."

Read the rest here.

I am not saying that I believe in this, but this info just adds up to the possible avenues on how things could be shaping up.

By the way, as the war against precious metal continues, the Mexican central bank has reportedly accumulated massive amounts of gold during the first quarter

From the Reuters,

Mexico massively ramped up its gold reserves in the first quarter of this year, buying over $4 billion of bullion as emerging economies move away from the ailing U.S. dollar, which has dipped to 2-1/2-year lows.

The third biggest one-off purchase of gold by any country over the past decade took Mexico's reserves to 100.15 tonnes -- or 3.22 million ounces -- by the end of March from just 6.84 tonnes at the end of January, according to the International Monetary Fund and Mexico's central bank.

This goes to show that either the Mexican Central Bank plays the role of the greater fool or that today’s manipulated decline will present itself as a buying opportunity. My bet is on the latter.

War on Precious Metals Continues: Silver Margins Raised 5 times in 2 weeks!

The war against precious metals, which I earlier pointed out, continues.

This from Reuters,

The CME Group (CME.O) sharply raised silver futures margins for a fourth and fifth time in under two weeks, an 84 percent rise in trading costs that has helped provoke a nearly unprecedented sell-off.

The 20 percent slide in silver prices since they touched an all-time high of $49.51 an ounce on April 28 has been in large part driven by selling from speculators who may be unable or unwilling to bear the surging cost of holding positions.

Holdings in the world's largest silver-backed exchange-traded fund, iShares Silver Trust, fell by 521.8 tons, or 4.78 percent, from the previous session to 10,387.26 tons by May 4.

The CME, which typically raises margins when volatility in markets increases, dealt the latest blow on Wednesday, announcing two separate, successive margin hikes.

It said margins would rise to $14,000 per contract from$12,000 effective Thursday, May 5, and again to $16,000 effective Monday, May 9. Prior to April 25 the margin stood at $8,700 per contract. One contract holds 5,000 ounces, worth about $200,000 at current prices.

Silver seems to be leading the rest of the other important commodity benchmarks as gold and oil (WTIC) down.

We also have reports that George Soros may have been unloading his holdings of precious metals.

Declining commodities have likewise placed some pressures on some emerging market stock markets as shown by the EEM index.

The point of all these seeming assault on precious metals could be to impress on the public that the Fed’s policies have not been inflationary.

And the possible deployment of price controls via higher margins appears to be supported by propaganda efforts from the US Federal Reserve, which has been issuing a stream of research papers.

Notes the Wall Street Journal Blog,

Over recent months, there’s been a steady flow of research coming out the Federal Reserve’s regional branches that aims to assess the risks generated by surging food, energy and commodity prices.

The latest comes from the Federal Reserve Bank of Boston, and it fits the arc described by much of the existing central-bank writings, which holds that long-run inflation in the U.S. is likely to remain under control despite rising prices for things like gasoline, food, and raw materials used in factories.

In the paper released Wednesday, Boston Fed researcher Geoffrey Tootell wrote “evidence from recent decades supports the notion that commodity price changes do not affect the long-run inflation rate.” He noted his conclusions in the paper were drawn from a brief given to his bank’s president, Eric Rosengren, to assist the official in preparing for a recent Federal Open Market Committee meeting.

In my view this is part of the orchestrated efforts to condition the public for the next round of QEs, particularly QE 3.0.

First is to apply the necessary interventions on the market to create a scenario that would justify further interventions.

Second is to produce papers to help convince the public of the necessity of interventions.

Then lastly, when the 'dire' scenario happens, apply the next intervention tools.

Influences Of The Yield Curve On The Equity And Commodity Markets

``The interest rates for more distant maturities are normally higher the further out in time. Why? First, because lenders fear a depreciating monetary unit: price inflation. To compensate themselves for this expected (normal) falling purchasing power, they demand a higher return. Second, the risk of default increases the longer the debt has to mature.-Gary North

The first structural factor, the record steep yield curve, should be a familiar theme to those who regularly read my outlook.

This accounts for as the “profit spread” from which various institutions take advantage of the “borrow short term and lend or invest in long term assets”[1].

The Yield Curve (YC) is a very dependable tool for measuring boom bust cycles (see figure 2).

That’s because artificially lowered interest rates, a form of price control applied to time preferences of the individuals relative to the use of money, creates extraordinary demand for credit and fosters systematic malinvestments or broad based misdirection of resources within markets and the economies.

Figure 2: Economagic.com: Yield Curve and the Boom Bust Cycle in the S&P 500

Sins Of Omission: The Influences of Habit or Addiction

It’s fundamentally misplaced to also conclude that just because balance sheet problems exist for many consumers, particularly for developed economies in the West, as they’ve been hocked up to their eyeballs on debt, that they would inhibit themselves from taking up further credit to spend. This also applies to some corporations.

Such presumption fatally ignores individual human action, particularly, for people to develop and sustain irrational habits. Some of these habits grow to the extent of addiction, which could have a beneficial (reading) or negative or neutral effect (mowing lawns). Albeit, addiction has a predominantly negative connotation.

While addiction[2] has many alleged modal causes, e.g. disease, genetic, experimental, and etc., some models have been argued on the basis of purely psychology, specifically:

-choice [The free-will model or "life-process model" proposed by Thomas Szasz],

-pleasure [an emotional fixation (sentiment) acquired through learning, which intermittently or continually expresses itself in purposeful, stereotyped behavior with the character and force of a natural drive, aiming at a specific pleasure or the avoidance of a specific discomfort."- Nils Bejerot]

-culture [“recognizes that the influence of culture is a strong determinant of whether or not individuals fall prey to certain addictions”]

-moral [result of human weakness, and are defects of character]

-rational addiction [as specific kinds of rational, forward-looking, optimal consumption plans. In other words, addiction is perceived as a rational response to individual and/or environmental factors. There wouldn’t be an addict or substance abuse problem, if those affected are disciplined enough to correct habit abuses.]

If affected persons, in recognition of such problems, simply applied self-medication or took preventive measures to avoid the worsening development of negative addiction, then obviously we wouldn’t have addiction problems at all! But certainly this hasn’t been true.

From a psychological standpoint, it would seem quite apparent that addiction is largely a stimulus response feedback mechanism or very much a behavioural predicament.

In other words, negative addiction is fundamentally a choice between temporal happiness over future consequences (frequently adversarial outcomes) or where habit interplays with choices, rational alternatives, environment, moral frailty, cultural influences or seductiveness of pleasure vis-a-vis normal behaviour.

Simply put, there is an incentive for people to develop different forms of addictions.

Applied to the markets or the economy, what if the source of profligacy [or Oniomania[3] or compulsive shopping or compulsive buying], a form of addiction, stems from government initiatives, by virtue of artificially suppressed interest rates?

And what if government induces people to spend on things they can’t afford with money they don’t have, out of the desire to fulfil economic ideology or to promote certain industries?

Will the teetotaller refuse government’s offer of free drinks?

How much of government induced behaviour from reckless policies will force individuals and businesses to take the low interest rate bait?

And this seems to be the story behind the yield curve.

The Stock Market And The Yield Curve Over The Long Term

Notice that every time the long term yield (30 year treasury constant maturity-red) materially diverges from the short term yield (1 year treasury constant maturity-blue) to form a steepened yield curve (black arrow pointed upwards), the S&P 500 (green) blossomed.

On the other hand, inverted yield curves, where short term yields had been higher than the long term yields (green arrow pointed downwards), had preceded recessions and severe market corrections.

Like normal yield curves, the yield curve’s impact on the economy has a time lag, a 2-3 year period.

Even the October 1987 Black Monday crash appear to have been foreshadowed by an account of relatively short inversion in 1986.

And the inflation spiral of the late 70s saw short term rates race ahead of short term rates for an extended period.

So why does an inverted yield curve occur?

Because the debt markets reveal the amount or degree of misallocations in the market ahead of the economy.

According to Professor Gary North

``This: the expected end of a period of high monetary inflation by the central bank, which had lowered short-term interest rates because of a greater supply of newly created funds to borrow.

``This monetary inflation has misallocated capital: business expansion that was not justified by the actual supply of loanable capital (savings), but which businessmen thought was justified because of the artificially low rate of interest (central bank money). Now the truth becomes apparent in the debt markets. Businesses will have to cut back on their expansion because of rising short-term rates: a liquidity shortage. They will begin to sustain losses. The yield curve therefore inverts in advance.”[4]

This means that when consumers and businesses compete for short term funds, demand for short term money raises interest rates. Nevertheless, as the fear of inflation recedes, “an ever-lower inflation premium”[5] forces down long term yields.

As a caveat, since corporations operate on the principle of a profit and loss outcome, they’re supposedly more cautious. But this hasn’t always been the case. And it should be a reminder that a fallout from an imploding bubble does not spare so-called blue-chips, as in the case of the US investment banking industry, which virtually evaporated from the face of earth in 2008.

Industries that have been functioned as ground zero for bubbles are usually the best and worst performers, depending on the state of the bubble.

Figure 2: Business Insider: Falling Net Debt To Cap

Figure 2 is an interesting chart.

Interesting because the chart shows of the long term trend of the S & P 500 Net debt to Market cap-which has been on a downtrend, for both the overall index (red spotted line) and the ex-financials (blue solid line).

Since it is a ratio, it could mean two things: debt take up has been has been falling or market cap has been growing more than debt. My suspicion is that this has been more of the growth in market cap than of debt (since this is a hunch more than premised on data, due to time constraints, I maybe wrong).

In addition, since the tech bubble, corporate debt hasn’t grown to the former levels in spite of the antecedent boom phase prior to the crash of 2008.

Nevertheless, the substantially reduced leverage from corporations, particularly the net debt (red spotted line) which has reached the 2005 low, suggest of a recovery. This could signify a belated play on the yield curve.

Prior to the recent crisis, the S&P net debt began to recover at the culminating phase of the steep yield curve cycle.

Could we be seeing the same pattern playout?

Commodities And The Yield Curve

Finally, the link of the yield curve relative to US dollar priced commodities has not been entirely convincing. (see figure 3)

Figure 3: Economagic: Yield Curve and the Precious Metals

Over the span of 3 decades, we hardly see an impeccable or at least consistent correlation.

Precious metals in the new millennium soared during the steep yield curve. But it also ascended but at much subdued pace during the inversion.

In the late 70s precious metals exploded even during inverted yield curve. While it may be arguable this has been out of fear, it does not fully explain why gold and the S & P moved in tandem see figure 4.

Figure 4: Economagic: Precious metals and the S&P 500

Moreover, between the 80s and the new millennium, correlations have been amorphous.

And perhaps as we earlier averred this could have been due to the formative phase of globalization where much of liquidity provided by the US Federal Reserve had been “soaked up” by the inclusion of China and India and other emerging markets in global trade as a result of policies from Reaganism and Thatcherism and the collapse of the Soviet Union.[6]

The various bubbles around the globe, during the said period, serve as circumstantial evidence of the core-to-the-periphery dynamics.

Overall, as the yield curve remains steep, we believe that the upward thrust of markets should continue to hold sway as the public will be induced to take advantage of the “profit spread” as well as with central banks continued provision of stimulus conditions that would revive the compulsive manic behaviour seen in persons afflicted by varied forms of addiction.

---

[1] See Does Falling Gold Prices Put An End To The Global Liquidity Story? and Why The Presidential Elections Will Have Little Impact On Philippine Markets

[2] Wikipedia.org, Addiction

[3] Wikipedia.org Oniomania

[4] North, Gary; The Yield Curve: The Best Recession Forecasting Tool

[5] North, Gary; When the Yield Curve Flips. . . .

[6] See Gold: An Unreliable Inflation Hedge?

Influencing Gold and Silver Markets, Backwardations Imply Higher Gold and Silver Prices

In Stock Market Investing: Will Reading Political Tea Leaves Be A Better Gauge?, we argued that today’s financial market can’t be used as reliable signals for interpreting future trends simply because financial markets especially in the US seem to be operating under the profound “influence” by the government.

And it seems that such “influences” have likewise been extended to the precious metal markets. Some agents of the banking sector, which has been under the lifeline of the US Federal Reserve, seems to have built heavy short positions in both the silver and gold markets.

Here is the excerpt (which includes charts) from Resource Investor’s Gene Arensberg,

``As of December 2, as gold closed at $783.39, the CFTC reported that 3 U.S. banks had a net short positioning for gold on the COMEX, division of NYMEX, of 63,818 contracts. The CFTC also reported that as of the same date all traders classed by the CFTC as commercial held a collective net short positioning of 95,288 contracts.

``That means that just three U.S. banks accounted for 66.97% of all the commercial net short positioning on the COMEX for gold futures.

Courtesy of Resource Investor (Source CFTC for Bank Participation, Cash Market for gold)

``For silver, it’s even more startling. On December 2, as silver closed at $9.57, exactly 2 U.S. banks held a net short positioning of 24,555 contracts. The CFTC reports that as of the same date all traders classed as commercial held a net short positioning of 24,894 contracts. So, the 2 U.S. banks, with one particular Fed member bank probably holding almost all of it, held a sickening 98.64% of all the collective commercial net short positioning on the COMEX, division of NYMEX in New York.

Courtesy of Resource Investor’s Gene Arensberg

``Exactly two U.S. banks have practically all the COMEX commercial net short positioning on silver. For a little context, 24,555 net short contracts means that the two banks held net short positions on December 2 for 122,775,000 ounces of silver with silver at $9.57. The COMEX said on December 4, that there were 80,239,857 ounces total in the “Registered” category, so these 2 malefactor banks held net short positioning equal to about 153% of the amount of deliverable silver in ALL the COMEX members’ accounts.

``And people wonder why both silver and gold moved into backwardation over the past two or three weeks? People are apparently worried that they won’t be able to take delivery of gold or silver metal from the COMEX in the future. They'll pay a premium now to get it now.”

In other words, the historical backwardation seen in the gold-silver markets accounts for as the brewing disparities between the precious metals’ physical markets relative to the financial markets or prices in the financial markets don't seem to be in synch with what has been going on in the physical markets.

To quote Professor Antal E. Fekete, ``Gold going to permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as it has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold…(emphasis mine)

For us, the most probable explanation for such attempts to influence the precious metal markets is to create the impression that “inflation” remains subdued or contained. The US government wants to stoke “inflation” in the asset markets (stocks and real estate), but not in the commodity markets.

To add, by keeping the impression of contained "inflation", this allows authorities to liberally expand its theater of operations as it continues to wage war against debt deflation.

Moreover, such backwardation can also be read as the unintended effects from the distortions brought about by the attempt to influence the gold and silver market prices and as growing indications of the weakening foundations of the US dollar.

Again quoting Professor Feteke, ``Backwardation will pull in stocks from the moon as it were, if need be. The cure for the backwardation of any commodity is more backwardation. For gold, there is no cure. Backwardation in gold is always and everywhere a monetary phenomenon: it is a reminder of the incurable pathology of paper money. It dramatizes the decay of the regime of irredeemable currency. It can only get worse. As confidence in the value of fiat money is a fragile thing, it will not get better. It depicts the paper dollar as Humpty Dumpty who sat on a wall and had a great fall and, now, “all the king’s horses and all the king’s men could not put Humpty Dumpty together again.” To paraphrase a proverb, give paper currency a bad name, you might as well scrap it.

``Once entrenched, backwardation in gold means that the cancer of the dollar has reached its terminal stages. The progressively evaporating trust in the value of the irredeemable dollar can no longer be stopped.” (emphasis mine)

A prolonged backwardation suggests that price suppression schemes will only build unsustainable pressures underneath which will eventually find a release valve and consequently be vented in prices. Thus, gold and silver prices are likely to zoom to the moon!