this is from james turk of goldmoney.com. he discusses the spike in leasing rates, and the outlook for the physical and paper metal markets:

Importantly, the spot price in London and Zurich for both gold and silver remains consistent with the spot price of the Comex. There is no backwardation yet. I say "yet" purposefully. I am watching this relationship carefully because the big spike in gold lending rates in recent days suggests that backwardation could occur at any time.

Though I have always considered backwardation in gold and silver a theoretical possibility, I never thought it would happen in practice. Backwardation would mean that conditions are so stressed that buyers would be willing to pay more for metal at the spot price than a future price. It would mean, among other things, that the future markets have been discredited and buyers want the "real thing" and not someone's promise -- as the old saying goes, "a bird in hand is worth two in the bush," which is becoming an increasingly important strategy to avoid counterparty risk.

I suppose that one could reasonably argue that a backwardation of sorts is already occurring. The shortage of fabricated product has led to extraordinarily high premiums for coins and small bars. These high premiums for coins and small bars indicate that the spot price for the precious metals should be much higher.

The gold cartel can allow the shortage of fabricated product to happen and just simply make up excuses for it. Right now there is no doubt in my mind that they are instructing the U.S. Mint and other mints to blame the shortages on high demand. But the gold cartel cannot make excuses if shortages appear in the LBMA market. If they did, the game would be over, just like what happened in March 1968.

To keep the price low back then, central banks were supplying metal in the London and Zurich markets. When they stopped supplying metal that month, the result was the two-tiered gold price. The so-called "official price" (which is another way of saying the "gold cartel price") remained at $35, while the free-market price traded above that level because everyone recognized that $35 were worth less than 1 ounce of gold. The same thing is happening today, in that $900 are not worth 1 ounce of gold. So we are probably close to the point (probably just weeks away) when the gold cartel stops supplying metal in London and Zurich at these low prices. The question is: What comes next?

It is of course impossible to predict what the gold cartel has up its sleeve, but I sense that a big announcement by governments is coming soon. It is reasonable to expect an outcome like March 1968, in which case the free-market price of gold will soar.

http://www.gata.org/node/6756