"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, August 12, 2013

Gold Futures' Spread Continue to Tighten

I wanted to provide a quick update for those who are following the "backwardation" talk out there.

I am currently showing the August, October and December gold futures contract all at the same exact bid. Also, the December has a mere $0.80 discount to the February. The futures market has still not entered a backwardation state but it is just about there. I will continue to monitor this and report on it should it occur.

Also, thus far I have not seen anything that would signal any problems with the delivery process for the August gold contract but one thing that does stand out is that J P Morgan continues to be the consistent, large stopper of gold for their "House" account. Morgan is acquiring a lot of gold.

It is going to be interesting to see whether they retender it before the month ends or at some point during another delivery month process but either way, they are acquiring it right now.

I am still watching that $1340 level in the December gold contract. So far it is proving to be formidable resistance. Strength in the gold shares is helping keep a very firm bid in gold but it is silver that is really proving a great degree of lift to the yellow metal.

That push through $20.50 is squeezing the shorts and it now looks as if the metal has a decent shot at testing $22.00.

Downside support for silver is first at $20.50 followed by $20.

Incidentally, gold is moving higher in spite of the fact that the US Dollar is stronger today.


  1. This comment has been removed by the author.

  2. Hi Dan,
    I don't know why you are still connecting the US dollar (You mean the USD INDEX?) and the price of gold.

    I have been following the 2 for many years and I have not seen a REAL connection between the 2 for many years now (at least 3 years).
    Could you please put a chart (5 years or even better 25 years).

    In April 2013 gold was at $1600 while the USD was at 83.5.
    Today gold is at $1335+ while the index is at 81.20...

    The media is still using the cliché, but it is used only for propaganda and misleading statements.

    1. Hubert ; there is a direct link between the Dollar and the gold price although I am the first to admit that it is not 100%. If it were, it would be difficult for gold to rise in terms of the other various majors.

      Sometimes it seems as if the Euro price has more of a direct impact rather than the USDX.

      Think about it this way - when gold is in a bull market, it is generally doing that because it is trading as a CURRENCY and not as a COMMODITY. That means it is a CONFIDENCE trade.

      Sometimes it will trade in sync with the Dollar if confidence in the European currencies is waning; sometimes not.

      I have put up more than enough price charts detailing the inverse relationship between gold and the US Dollar over the years here at the site. BRowse through and dig up some of those and you will see the connection.

      Again, it is not 100% nor can it be since that would make it very difficult for the gold price to rise in other currency terms but it is close enough that when there is a big discrepancy, such as today, it catches my attention.

      And no, I do not believe it is propaganda or misleading to state something that is accurate more than 50% of the time.


    2. Dan,
      I agree with you on one point: Gold is acting as a currency. I have said in my blog almost 3 years ago that what we were witnessing was a fight between the dollar and gold. It is why the FED tries to put gold down in any way and language possible in order to save the dollar which is in its finale way down for good. The consequences of the demise of the dollar are so terrible for the whole world that I almost agree with the FED trying to reduce the speed of its fall...

      What I said in my blog was that it will come a time where gold AND the dollar will go up or down together due to outside forces. we are witnessing this time now. I would suggest to check this link, where the disconnect is seen very clearly:


      "Flight to safety" used to be a one way street: USD UP and with it US treasuries. However this has somewhat changed and now and then, and more and more frequently gold is used as "flight to safety". This is a war between the 2 nemesis and my bet is on gold.

      Finally, the "propaganda": I read as many stories as possible when gold is down. All the headlines, which in fact are 1 or 2 stories repeated by different media using the same 1 or 2 sources, are talking of gold down because of the strength of the dollar. when you check the value of the USD it is up 2 to 10 points while gold is down 2 to 3%. This for me is propaganda.

      Dan, I respect your opinion and I thank you again for the time you take to educate us. I do appreciate your thoughts and opinions. However, right or wrong, I do not agree with you on this subject.

      Lets agree to disagree and close the subject.

    3. Hubert, instead of looking at lots of apples (the USDX data) and oranges (gold data) to try to infer a relationship, it is better to just measure the full basket of fruit to see if changes in relative value are caused more by gold or by the US$. :-) I do that by multiplying gold times the USD (which I call the MoreAU Index), and then posting the updated chart each week at this link: MoreAU Index You can read more about the background of that approach here: More gold and silver. Cheers! Jim

    4. This is why I said that there is no real connection between the USD (the currency) and gold.

      In the last 10 years gold value has increased 263% vs the US dollar while it increased 210% against the index. This is 30% difference. I will add that when you check the numbers on a short term basis you can see the real loss of value of the US currency vs gold. For example in the last 60 days gold was down 3.9% vs USD and down 2.9% vs the USDX... In the last 30 days gold was UP 4.2% vs the USD and only 2.1% vs the index.

      This is why I am saying that there is no REAL connection between the two, not as much as the media want us to think there is.

      I will add that it is, in my opinion, better to check the relative value of various currencies vs gold to better understand which ones are the winners or losers of the future.

      For information, in the last 10 years, gold is up:
      145% vs Swiss Franc.
      166% vs the Brazilian Real
      167% vs The Chinese Yuan
      193% vs The Japanese Yen
      207% vs the Euro
      276% vs the Sterling
      263% vs the US dollar

      Sorry Dan, I wanted to close the subject but I had to reply to the Optimist. File closed now

    5. Hi Hubert,

      Why close a subject just because one partially disagrees? Then what's the point of the forum? :)
      (unless Dan wants to open a Facebook account with a number of followers and likes as the only KPI :))

      " it will come a time where gold AND the dollar will go up or down together due to outside forces. we are witnessing this time now."

      What outside forces are you referring to?
      I don't quite understand where you disagree actually, which makes me a bit confused.

      In my understanding, I see Gold and US Dollar (I put aside the usd index here) competing with each other as the ultimate safe haven in case of trouble.
      Dollar because it is a reserve currency and historically throughout so many countries in the world, it is still the reflex of so many people to buy US dollars and nothing else from fear of inflation in their own currency. Look at Argentina right now, it's a good example. Seems that Marting Sibileau's blog has closed, but you can probably find history of his analysis right from Buenos Aeres on the web. Myself, I was in Iran last october (I've just generated an automatic NSA response program which is now probably sending a drone to check if I'm a t.......t) and very few people thought about buying gold rather than dollar.
      Same in Paris a few years ago. I was at place de l'Opéra and there was a small queue of french people, not tourists at all, changing their euros into dollars, afraid of the future of their currency.
      So there is no question imho that before proven otherwise, the dollar will keep attracting a lot of investors as a safe haven other the world.
      Add to that the fact that gold is a very narrow market and just cannot receive all the money looking for a safe haven without exploding upwards (which is btw my point as a long-term gold investor :))

      The correlation is not perfect, because there are other currencies in the mix, so when people flee the Euro or other currencies, it benefits to the dollar, and then you can see dollar and gold rising together.
      But it seems to me that it's rather the exception than the rule.
      And that eventually, because of QE to infinity and geopolitical actions of major countries getting away from the USD, gold will be the nemesis of the dollar until the world defines a new currency system and restores some trust once again. That's why, as long as this new currency system is not defined, I see Gold as the only obvious alternative to a crash of the current world reserve currency (yuan still not ready), and therefore as the direct competitor of the dollar.
      But it seems that you agree on that, so what do we disagree about?

  3. Hubert,
    I noticed the relationship of a rising gold price and dollar throughout the 2008 crisis and of course other times as well. Then as Sinclair often says the two trade inversely much of the time. I wonder if at times of crisis as something seems to be up right now, these two often trade together as in flight to safety.

  4. Dan or others; What are your thoughts on Butler's claim that Morgan has reversed and is now long 85,000 gold cars or so and is now cornering this mkt? steve in sparks

    1. Steve;

      I really do not know the size of Morgan's gold position, nor does anyone else for that matter. They are however the strong stopper at the Comex right now for the month of August.

    2. Hi Dan,

      For any other newbies out there: The "issuer" is the seller, and the "stopper" is the taker of delivery on the Comex.

      I've not been able to find the related delivery report at the CME website. Needle, meet haystack.

  5. Dan, looks like backwardation is here now unless I am misunderstanding the board? (I've never traded futures, only USD/XAU cross via forex so forgive me if I'm misinterpreting)

    GCY00 (Cash) 1,338.06
    GCV13 (Oct '13) 1,335.7
    GCZ13 (Dec '13) 1,335.7
    GCG14 (Feb '14) 1,335.2
    GCJ14 (Apr '14) 1,337.4
    GCM14 (Jun '14) 1,337.5

  6. Hi Dan,

    It's great to follow the market with your additional eyes.
    I feel like a cyborg ready to crush the bears at the first hint of weakness :)

    You wrote "it is silver that is really proving a great degree of lift to the yellow metal."

    That's the thing that would make me cautious about gold prices now. Because we shot up above 20.50 at the exact moment that we broke an obvious downtrend channel on silver (see yesterday's chart below). So maybe this rush is generated by stop losses and trail stops of those who were following that channel, which means short lived phenomenon.
    Now this channel is seen on a daily unit, which means that on the same unit, it would not be unusual to see a correction back down towards 20.50 or even to the top (ex resistance) of that downward channel. So maybe gold will face headwinds while meeting this 1350 $ resistance again.

    But apart from that, the picture definitely starts to look better for us poor long term gold investors ;)


  7. I would like to ask the author if he could tell me the source of the above information. Is it taken from a Gold Trading Advisory Company or from your personal analysis.


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