Backwardation is a powerful signal of very strong demand that is attempting to send a signal to the market that it needs more of that commodity to satisfy existing levels of demand. While market price manipulation can be somewhat effective short term for fogging signals generated from a rising price in gold for example, it is generally unable to affect the spread structure of the entire set of futures contracts listed on the board at any given time.

With this in mind, take a look at the April 09 Comex gold contract and its spread between the June 09 Comex gold contract. Notice the narrowing of the spread, or the move in the direction of backwardation. It is not there yet but the fact that this particular spread has narrowed so significantly is more than noteworthy. It is a mere $0.60 from moving into backwardation after having traded as wide as $6.50 at one point.

To show that it is not just an April/June phenomenon, but rather one that is beginning to characterize the structure market of the Comex gold contracts, please note that the EXACT same thing has been occurring in the April 09/Dec 09 Comex gold spread. It too has narrowed quite significantly.

While nothing is foolproof in this day and age of managed markets and official sector shenanigans, the timeless spread charts are telling us a story that even the best efforts (or worst efforts if you prefer) of the Western Central Bankers and their unending war on gold is drawing to a close in which their policies have all but ensured their defeat at the hands of the “barbarous relic”. Short term they can win many battles but long term they cannot prevail in the war against gold