Late last week through this weekend I started receiving numerous emails about gold backwardation theories, Amero sightings, Yuan devaluations, and all sorts of other stories that do not stand up to even the most casual of scrutiny.

Let's kick off the hit parade with Red Alert: Gold Backwardation

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 To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold.

Negative basis (backwardation) means that people controlling the supply of monetary gold cannot be persuaded to part with it, regardless of the bait. These people are no speculators. They are neither Scrooges nor Shylocks. They are highly capable businessmen with a conservative frame of mind. They are determined to preserve their capital come hell or high water, for saner times, so they can re-deploy it under a saner government and a saner monetary system.

Nothing Special About Backwardations

A friend who has a seat on the NYMEX had this to say:

I have seen countless commodities go into backwardation for numerous reasons, the most frequent being a radical temporary divergence between immediate demand and overall demand. I have seen backwardations that have lasted years. The article is based on the assumption that a backwardation will necessarily lead to a breakdown of the delivery mechanism.

For every breakdown of delivery there have been thousands of backwardations. It is only if and when the actual breakdown occurs that the conclusions the author draws make any sense.

There is nothing special about backwardations. Period. OK they are rare in gold. So what?

Gold No Longer For Sale At Any Price?

That is simply a ridiculous claim. On November 24th I had the following conversation with James Turk at GoldMoney.

Mish: James what size bars of gold and silver do you buy?
Turk: Bars that meet the standards of the LBMA. Gold bars weigh approximately 400oz per bar, and silver 1000 per bar.

Mish: Any problems with deliveries?
Turk: Not yet, we buy in the spot market for cash. We have had difficulty though in finding bonded silver bars in London (i.e., bars in bonded warehouses which enables our customers to buy silver without UK's onerous 17.5% value added tax - by buying bonded bars, the tax is levied only if they take delivery of the bars). Consequently, we raised our fees in London to discourage buying there so that customers buy silver in Zurich instead, where we have had no problem finding bars.

Mish: What do you know about smaller sized bars and getting deliver of them?
Turk: Only what I have been reading, namely, that they are in short supply and premiums as a consequence have soared.

Mish: Can you address or speculate as to why manufacturers are not making smaller retail sized bars of silver and gold, as well as coins?
Turk: The manufacturers are primarily government owned mints. So one theory is typical government incompetence. There is another theory. Given that all government mints around the world are not meeting demand, the theory is that we are seeing a coordinated effort by governments to purposely not meet demand. Their objective is to keep people out of metal so that their money remains in the banking system.

My vote is for incompetence. Whatever you believe, it sure is not suppressing the price of gold coins or small investor demand. But the most important question to ask is .....

Why Pay A Premium?

I simply do not understand paying absurd premiums for gold or silver coins.

Note that GoldMoney is physical gold, not paper gold. Turk takes delivery, and stores it. The vaults are audited. If you want to own physical gold, this is one of the best ways to do so.

I reiterate I Like Gold Here.

For the sake of full disclosure, I will point out that I have an account and a relationship with GoldMoney. And finally, I will point out, the relationship does not affect the price anyone pays or receives when buying or selling.