Backwardation

JPMorgan Puzzled By Record Gold Backwardation

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– JPMorgan Puzzled By Record Gold Backwardation (ZeroHedge, Aug 18, 2013):

Curious where all the demand for (immediate) physical gold (delivery) is coming from (as detailed here first in April)? As it turns out, so is JPMorgan.From this week’s Flows & Liquidity

SEC filings showed that the largest hedge fund holders of the gold ETFs liquidated most of their positions in Q2, although the single largest holder commented that they had simply switched their exposure from ETFs to the OTC derivative market as the current downward sloping forward curve makes it cheaper to be long gold through futures than via the ETF. Figure 7 shows the annualized % difference between the 1st and 2nd COMEX gold futures contracts going back over the past 30 years on a weekly basis. As the figure shows, a backwardated (downward sloping) gold forward curve is very unusual. This is an indicator of how strong physical demand is, i.e. spot is bid up relative to forward prices due to strong demand for immediate delivery of gold.

Ostensibly, this means that until the Bundesbank and/or PBOC finally issue a relevant 8-K, the “confusion” will continue.

Physical Gold Supply Tightness (2 Powerful Videos)

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– Two Powerful Videos on Physical Gold Supply Tightness (Liberty Blitzkrieg, Aug 14, 2013):

If the physical gold market is anywhere near as tight as these two market observers indicate, get ready for some serious fireworks in the precious metals markets. The first video is one that has been making the rounds in recent days. It’s an interview with Mihir Dange, co-founder of commodity trading firm Grafite Capital from the NYMEX, in which he discusses Chinese demand, backwardation and physical supply tightness.

The second video is an interview of Tarek El Mdaka, managing director at Kaloti Jewellery Group in Dubai. While it starts off slow, bear with it, as toward the end he states:

“After this drop [in price] we have 90 days order logbook. So we cannot fill the demand we have at this stage.”

These are must watch videos for anyone interested in the gold market. Enjoy!

Gold Backwardation Goes Mainstream … Reuters: ‘Run For Your Gold, There Is Not Enough For All’

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From the article:

“That’s why a fall or rise in gold prices is not so relevant anymore. The monetary ‘fire alarm’ message, courtesy of the relationship between spot and futures prices, is run for your gold, there is not enough for all.”

– Gold Backwardation (GOFO) Goes Mainstream (Liberty Blitzkrieg, July 21, 2013):

Back on April 19, I highlighted an excellent write up by Professor Antal Fekete on gold backwardation and the end of fractional reserve bullion banking titled: Who Said the Hydra Would Take it Lying Down. In it he wrote:

In waking up too late that there was a problem after gold futures markets have been flirting with backwardation for a year or so, officialdom was forced to act. Act it did in a typically haphazard fashion. A few days ago, on April 12 and 15 the paper gold market was demoralized by a ferocious attack on the lofty gold price. This in and of itself is proof that Bernanke is fully aware that permanent gold backwardation is imminent, and that it will create and unmanageable situation. It’s got to be stopped in its track at all hazards.

In fact, however, a lower gold price is making the problem more intractable, not less. The Fed is diving from the frying pan into the fire. This is the point missed by almost all observers and market analysts. They ignore the underlying flight into physical gold that continues unabated, in spite of (or, better still, because of) the panic in the paper gold market. The Fed’s intervention in bankrolling short interest is going to back-fire, for the following simple reason. The Fed’s strategy is inherently contradictory. A lower price for paper gold makes it easier, not harder, to demand delivery on maturing futures contracts.

Several months later it appears Professor Fekete’s comments have been spot on, and the “hydra” has continued to employ brute force on the paper gold market in an effort to shake whatever supply they can from the financial trees. Unfortunately for them, it’s not working and gold’s backwardation continues to expand. Zerohedge has done a great job covering this ahead of the mainstream media as usual, most recently here.

Amazingly , it appears the mainstream media is now picking up on this huge development. In an article two days ago Reuters wrote:

July 19 (IFR) – A dislocation in the gold futures market indicating that demand for physical delivery of the metal is now far outweighing supply has intensified in recent weeks, increasing concern in the market that the change may not be a momentary blip and participants may have become over-leveraged.

Read moreGold Backwardation Goes Mainstream … Reuters: ‘Run For Your Gold, There Is Not Enough For All’

Prof. Antal Fekete On Gold Takedown: ‘Who Said The Hydra Would Take It Lying Down … While Its Several Heads Were Being Chopped Off One – By – One?’

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– Professor Fekete on the Gold Smash: “Who Said the Hydra Would Take it Lying Down” (Liberty, Blitzkrieg, April 19 2013):

Ostensibly a lower gold price would solve the problem Bernanke has. Demoralized gold bugs would be forced out of their holdings through margin calls. Disillusioned investors would shun gold. This would make physical gold available to rescue the strapped gold futures market.

In fact, however, a lower gold price is making the problem more intractable, not less. The Fed is diving from the frying pan into the fire. This is the point missed by almost all observers and market analysts. They ignore the underlying flight into physical gold that continues unabated, in spite of (or, better still, because of) the panic in the paper gold market. The Fed’s intervention in bankrolling short interest is going to back-fire, for the following simple reason. The Fed’s strategy is inherently contradictory. A lower price for paper gold makes it easier, not harder, to demand delivery on maturing futures contracts.

– Professor Antal E. Fekete

Of all the articles I have read since the attack on the precious metals markets, this piece by Professor Fekete is the best one yet. I completely agree that this was an extremely desperate and brazen attempt by the Central Planners, one that is quite clearly backfiring big time.  My favorite excerpts are below:

In waking up too late that there was a problem after gold futures markets have been flirting with backwardation for a year or so, officialdom was forced to act. Act it did in a typically haphazard fashion. A few days ago, on April 12 and 15 the paper gold market was demoralized by a ferocious attack on the lofty gold price. This in and of itself is proof that Bernanke is fully aware that permanent gold backwardation is imminent, and that it will create and unmanageable situation. It’s got to be stopped in its track at all hazards.

Well, well, well. Gold is not the same as frozen pork bellies after all. The Hydra is not taking it lying down. The kid gloves have finally come off.

Read moreProf. Antal Fekete On Gold Takedown: ‘Who Said The Hydra Would Take It Lying Down … While Its Several Heads Were Being Chopped Off One – By – One?’

Backwardation In Gold And Silver

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– Backwardation in Gold And Silver (ZeroHedge, May 17, 2012):

On Monday, May 14, something happened that hasn’t happened since Dec of 2008.  Two successive near-month precious metals futures contracts were in backwardation at the same time.  To oversimplify, backwardation is when the price of a futures contract is lower than the price in the spot market.  It should not be possible for it to happen in gold and silver.

Read moreBackwardation In Gold And Silver

Physical Silver Surges To Record 30% Premium Over Spot, In Backwardation

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– Physical Silver Surges To Record 30% Premium Over Spot, In Backwardation (ZeroHedge, Jan. 6, 2012):

One of the main reasons why we have been not so focused on paper representations of real currencies (i.e., gold and silver) is that ever since the MF Global debacle, in which it became all too clear that if physical gold can be “hypothecated” via conflicting ownership, then there is no way that paper versions of precious metals are viable and indeed credible. After all, the only real owner at the end of the day is the certificate holder, which as we have explained before, is none other than DTCC’s Cede & Co. Good luck collecting when the daisy chain of counterparties starts falling. Which leaves physical. And for a good sense of what the “real” price of the metal is, not one determined by institutions whose interest it is to preserve the hegemony of paper, one can either try to procure gold and silver at a retail merchant, or one can look to the premium of a dedicated physical ETF over spot. Such as Eric Sprott’s PSLV which as of today is trading at an all time high premium of 30%! In other words, someone is willing to pay up to 30% over spot for the right to be closer to the physical metal than merely have a paper claim on a paper claim (pre hyper rehypothecation and what not). Incidentally the last NAV premium over spot record was back in April 2011 just as silver went parabolic and the entire commodity complex experienced the infamous May 1 takedown when it collapsed by $8 dollars in milliseconds on glaringly obvious coordinated intervention. Said otherwise, like back then, so now there is an actual shortage, manifesting itself in the premium. And while last time its was the price plunge which eased supply needs, we are not so sure how one will be able to spin a collapse of the current, far lower paper silver price.

But wait, there’s more: As Keith Weiner explains below, silver also happens to be in backwardation. While we have covered the topic before, here is Keith with his explanation of what this means, although for those who like the punchline here it is, as above: shortage.

The Arbitrageur: Silver In Backwardation

Read morePhysical Silver Surges To Record 30% Premium Over Spot, In Backwardation

Why Silver Is Headed To $500 Per Oz – Backwardation Explained

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This excellent video is an absolute MUST-SEE for all that haven’t watched it yet:

– Silver: Shortage This Decade, Will Be Worth More Than Gold (!!!)

The following video is old news for I. U. regulars.


Added: 02.03.2011

Only physical gold and silver are real, everything else is an illusion.

– Exposed: The iShares Silver Trust (SLV) Scam

More on gold and silver:

Silver:

– Silver Touches Fresh 31 Year High of $34.90, US Mint Runs Out Of Bullion Blanks, Halts American Eagle Silver Coin Production

– CNBC: Total Silver Demand At 127% ! – The Case For $130 Silver

– Dollar Ready to Collapse, Silver Squeeze to Continue

– Even The Royal Canadian Mint Now Says It’s Difficult To Secure Silver

– Unprecedented: Silver Backwardation Surges To Over $1.00

– Eric Sprott on Silver: ‘THERE IS NOTHING LEFT’

– Fractal Analysis Suggests Silver to Reach $52 – $56 by May – June 2011

Read moreWhy Silver Is Headed To $500 Per Oz – Backwardation Explained

Dollar Ready to Collapse, Silver Squeeze to Continue

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With gold higher and silver up almost $1.30, King World News today interviewed James Turk out of Spain. Turk had this rather frightening warning about the dollar, “The dollar right now is hanging on the precipice. If we break below 77 on the dollar index, look out below. I don’t think people really appreciate how scary the dollar chart is here, or how ominous the implications really are. There’s no predicting how far the dollar could plunge if confidence breaks.”

Turk continues:

“You’ve got civil war breaking out in North Africa and you have rebellions happening in the Middle-East. In this kind of geopolitical situation, in the past the US dollar would always rally, but this time it can’t even bounce. You know Eric the other side of this coin is that if the dollar falls off the edge of a cliff, precious metals are going to skyrocket.”

When asked about silver Turk stated, “During the most illiquid time of the trading day, somebody decided to take out all of the stops in silver. If you were not following during business hours in the Pacific Ocean you missed it. I woke up this morning and looked at the chart and couldn’t believe what happened while I was sleeping.

The important point Eric is that no technical damage was done and in fact the situation has become even more bullish because that little smack down overnight took out all of the weak hands.

With this month’s important options expiry now behind us, I’m looking for higher prices next week. Even though the March/May spread has flattened a little, the backwardation continues to grow to 2015 and has ballooned further to $1.16. The short squeeze is continuing to develop. The shorts are trapped and whether the trap springs this week or in a month or two I don’t know, but we are getting very close.”

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Full article here: KingWorldNews

Unprecedented: Silver Backwardation Surges To Over $1.00

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See also:

– Eric Sprott on Silver: ‘THERE IS NOTHING LEFT’

– Fractal Analysis Suggests Silver to Reach $52 – $56 by May – June 2011

– Silver Backwardation Now ‘Unprecedented 73 Cents’

The last time we presented the silver backwardation chart, it was “only” $0.50 or so between the front month and the long end. In the week since then the difference has jumped to what we believe is a new record of $1.50 or so.

Now that the CBOE is issuing CEBOs and allowing plain Jane investors to bet on imminent corporate bankruptcies, would it be so kind to issue a contract or two on the COMEX… Pretty please?

Silver Backwardation Now ‘Unprecedented 73 Cents’

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With silver trading at $33.50 and gold breaking above $1,400 in early trading in London, King World News today interviewed James Turk out of Spain to get his thoughts. Turk remarked, “The backwardation that we have been talking about has now blown out to 73 cents, that is unprecedented. I find that number to be completely astounding! Where are the arbitrageurs? They could make a fortune. This suggests to me that the arbitrageurs are out of the market because they don’t have the physical metal to sell to deal with the imbalance.”

Turk continues:

“The fact that arbitrageurs are not pouncing on this huge bakcwardation is just further evidence of how little physical silver is available.

Going back the KWN blog we did on February 10th, this backwardation in silver has potentially huge implications for the US dollar.  Metal goes into backwardation for two reasons – Either short supply, or nobody wants to accept fiat currency.  We know the backwardation in silver is because the supply of physical metal is so short.

But the lingering question in my mind is whether the strong hands who hold silver are unwilling to take a fiat currency.  If that is the case, and this backwardation in silver eventually leads to a backwardation in gold, the implications for the US dollar, and indeed all of the fiat currencies in the world are ominous.”

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Full article here: King World News

More on gold and silver:

Read moreSilver Backwardation Now ‘Unprecedented 73 Cents’

Silver: Short Squeeze Could Be the Big One – Reaches New Multi-Decade High – Still In Backwardation

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And please keep it, although this guy certainly made his point:

– Man Buys Maple Leaf Silver Coins And Throws Them Into The Ocean: Crash JP Morgan – Buy Silver! (Video)

With silver closing at a new multi-decade high, King World News today interviewed James Turk out of Spain. When asked about silver specifically Turk stated, “I always listen to what the market is telling me. The backwardation and all of the other factors that we have been talking about mean that the market is telling us the situation in silver is very bullish, regardless of what the naysayers are spouting.”

Turk continues:

We are at a new multi-decade high, silver is still in backwardation, Comex open interest has been expanding and perhaps most importantly, I refer to the insight Dan Norcini provided in the KNW Weekly Metals Wrap, namely that silver is trading above all of its important moving averages.

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The hard part for investors was to buy on that drawdown in price from the old high of $31.23 to just above $26.38. It shows how the accumulation program that we continue to stress can take the emotional aspects out of buying both gold and silver. It just becomes mechanical for investors to buy at the same time each month.

With the new multi-decade high in silver, the shorts find themselves on the ropes. Given my study of short squeezes in the past, we have to open our minds as to what is possible here. There is no way of predicting the future, but short squeezes usually end up with a rapid escalation in price, meaning this could be the big one.

Full article here: King World News

More on gold and silver:

Read moreSilver: Short Squeeze Could Be the Big One – Reaches New Multi-Decade High – Still In Backwardation

Massive Short Squeeze in Silver, Gold to Hit New Highs

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With gold recently strengthening and silver attacking multi-decade highs, today King World News interviewed James Turk out of Germany. Turk commented, “Eric, there are a lot of stories making the rounds talking about silver hedging. People should not be scared by them. When you actually analyze it and consider what is happening, the implications are bullish for silver.”

Turk continues:

“The media is putting this talk about hedging in a bearish light, and normally they would be right to say hedging is bearish for the price of metal. But not now. Even if these reports of new hedges are true – and the rise in silver interest rates recently suggests as one possibility that some hedging may be taking place – the underlying bullish dynamics for silver are not negatively impacted.

In fact, the rise in silver interest rates itself suggests both a desperation to borrow physical silver at whatever cost to meet delivery demands and avoid a default as well as that physical silver is in such short supply people are willing to borrow it at unusually high rates. So rising silver interest rates here is bullish, but let’s consider what happens in a hedge.

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There is no pressure on the spot price, as evidenced by the fact that spot silver has jumped more than $4 higher over just twelve days while these hedges were supposedly taking place – and of course silver is still in the extreme backwardation that I mentioned when it first happened last week…Click Here

In fact, the backwardation is steepening almost every day. The 13-cent backwardation to Dec 2015 I mentioned previously has now widened to 32-cents, meaning physical silver is becoming even more scarce – and the shorts are in an even more difficult position.

So even if a bullion bank is borrowing silver to sell spot to complete a hedge for a mining company, the important point is that the spot market is absorbing everything the bullion banks can throw at it, and even more importantly, silver remains in extreme backwardation which itself is growing. All of this is very bullish, but here’s another even more bullish interpretation of this hedging.

It’s bullish because it represents a recognition by the big bullion banks that are short silver that they are in trouble and need to cover their losing position.

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So the commercial shorts in silver are about to be squeezed again and gold is going to hit new highs. All just part of a secular bull market in the metals, sit back and enjoy the ride.

Full article here: King World News

Read moreMassive Short Squeeze in Silver, Gold to Hit New Highs

COMEX Silver Inventories Drop To 4 Year Low. COMEX Default Or Hunt Brothers Redux?

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Silver Bullion COMEX Stocks at 4-Year Low as Backwardation Deepens

Gold and silver are higher after last week’s 1% and 3.5% gains in dollars. Silver is particularly strong again this morning and the euro has come under pressure as bonds in Ireland, Spain, Portugal and Greece continue to rise. While Asian equity markets were higher, European indices have given up early gains.

Silver’s backwardation has deepened with spot silver at $30.16/oz, March 2011 contract at $30.13/oz and April’s at $30.00/oz. While spot silver has risen nearly 1% so far today, the July 2012 futures contract was down 0.187% to $29.81/oz.

The gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces.

The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion. The US government is now paying some $4 billion a day merely on the interest charges for the national debt. It is also the same value as Twitter’s new venture round of financing or Ford’s debt pay down in the first quarter.


Comex Silver Inventory Data

Talk of a default on the COMEX is premature but the scale of current investment demand and industrial demand, especially from China, is such that it is important to monitor COMEX warehouse stocks.

Read moreCOMEX Silver Inventories Drop To 4 Year Low. COMEX Default Or Hunt Brothers Redux?

‘US Silver Term Structure Inverts As Supply Tightens’ – Reuters Article On Silver Backwardation

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Don’t miss:

– Silver Bullion Backwardation Suggests Supply Stress:

Backwardation rarely happens in the gold and silver bullion markets. Since gold futures first started to be traded in 1972 (on the Winnipeg Commodity Exchange), there have only been momentary backwardations of a few short hours.

– Silver Lease Rates Rise Sharply – Bond Yields in Portugal Rise to Record

– Silver Is Already In Extreme Backwardation! If The Same Happens With Gold, Then The End Game For The US Dollar With Hyperinflation Is Near

* COMEX silver stocks falls to four-year low

* First silver futures backwardation since ’97-98

* Strong industrial, coins demand, producer hedging cited


NEW YORK, Feb 11 (Reuters) – The tightest physical silver supplies in four years have tipped the U.S. silver futures market into backwardation this week, making near-term prices more expensive than more distant months.

Market watchers said that it has been more than 10 years since silver futures were last in backwardation, an unusual term structure, associated with shortage of physical supply. Warehouse stocks of the white metal have dropped to a four-year low on surging demand, while miners have hedged their future production.

Booming industrial demand for silver and record U.S. coin sales, combined with a surge in demand from mining companies to borrow the metal for their hedge programs have led to a squeeze in the physical silver market.

“The problem is that there is great industrial demand for a specific grade of silver, and there is not enough coming fresh from the mines,” said Miguel Perez-Santalla, vice president of Heraeus Precious Metals Management.

“The stocks are being pulled for all the high grade and better materials, and that essentially put a squeeze on the physical market,” he said.

Perez-Santalla said that silver futures have not been in backwardation since billionaire Warren Buffett bought 130 million ounces of silver between 1997 and 1998.

Backwardation is a condition where cash or nearby delivery prices are higher than the price for delivery dates further in the future. Usually, forward prices are higher than cash prices to reflect the costs of storage and insurance for stocks deliverable at a later date.

“The extent of the backwardation in silver is unprecedented. It suggests that retail investment and industrial demand internationally is very robust and the small silver bullion market cannot cater to the level of demand for refined coin and bar product,” bullion dealer GoldCore said in a note on Friday.

Read more‘US Silver Term Structure Inverts As Supply Tightens’ – Reuters Article On Silver Backwardation

JP Morgan Silver Manipulation Explained (Part 1-4)

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“The Biggest Scam in The History of Monetary Civilization”

Part 1:

Added: 2. December 2010

Part 2:

Added: 24. December 2010

Part 3:

Added: 9. January 2011

Part 4:

Added: 11. February 2011

More on gold and silver:

Read moreJP Morgan Silver Manipulation Explained (Part 1-4)

Silver Bullion Backwardation Suggests Supply Stress

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Silver in USD – Long Term

Gold and silver are higher against all currencies (except the Canadian dollar) in the wake of the worse than expected trade deficit number ($40.6 billion). Sterling and euro are particularly weak against gold and the US dollar today.

Silver backwardation continues and while spot silver is at $30.09/oz, the March 2011 contract is at $30.07/oz and April at $30.01/oz. Incredibly, the July 2012 contract is trading at $29.93/oz and the December 2013 contract at $29.91/oz.

Backwardation is when the market quotes a lower price for spot delivery or a more nearby delivery date, and a higher price for a distant delivery date in the futures market. It indicates that buyers are concerned about securing supply in the future and are willing to pay a premium for spot delivery. It suggests that silver bullion in volume is difficult to buy and that the physical market is stressed and becoming less liquid.

Backwardation starts when the difference between the forward price in the futures market and the spot price for physical delivery is less than the cost of carry, or when there can be no delivery arbitrage. This is generally because the asset is not currently available for purchase or is increasingly illiquid.

It can end in default, failure to make delivery, and in sharply higher prices.

Backwardation rarely happens in the gold and silver bullion markets. Since gold futures first started to be traded in 1972 (on the Winnipeg Commodity Exchange), there have only been momentary backwardations of a few short hours.

The extent of the backwardation in silver is unprecedented. It suggests that retail investment and industrial demand internationally is very robust and the small silver bullion market cannot cater to the level of demand for refined coin and bar product.

This is not surprising considering the massive increase in demand, especially from Asia and China in recent months. In China alone, demand increased a huge four fold in just the last year to 3,500 tonnes.
net monthly Chinese silver imports Mitsui GoldCore


Table Courtesy of Mitsui

Read moreSilver Bullion Backwardation Suggests Supply Stress

Silver Is Already In Extreme Backwardation! If The Same Happens With Gold, Then The End Game For The US Dollar With Hyperinflation Is Near

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Looks like the game is up:

– Dutch Central Bank Orders Pension Fund To Sell Its Gold!

– Jet Loaded With Millions in Gold and Cash Seized by Congolese Authorities Linked to Philanthropist David Disiere

Now also the …

–  Perth Mint Has Run Out of 100 Ounce SILVER Bars for at least 6 Weeks!!!

Turk – Silver Backwardation for Years, Possible Hyperinflation

King World News has received word from James Turk that silver is in extreme backwardation.

Turk stated, “There is a huge story that is brewing. Silver is in backwardation to 2015, which is 13-cents cheaper than spot. This is unbelievable. Money does not go into backwardation except ‘in extremis’!”

Turk continues:

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“Look for a short squeeze in silver already underway as evidenced by the backwardation to intensify as we move toward silver option expiry at the end of this month, and silver delivery on March futures contracts in early March. In a short squeeze, what matters is ownership, not price. When you own physical metal, you are protected from government sanctioned force majeure that bails out the shorts.

As I mentioned Friday, the paper market for silver is losing its significance in the process of price discovery. Everyone who owns physical silver should make their decisions based on what is happening in the physical market, not the paper market.

A basic premise of precious metals is that silver leads gold, which is a point we have discussed before. It will be interesting to see whether the backwardation in silver will lead to a backwardation of gold. If it does, the end game for the US dollar is near. It would mean hyperinflation of the dollar is upon us.”

Full article here: King World News

Read moreSilver Is Already In Extreme Backwardation! If The Same Happens With Gold, Then The End Game For The US Dollar With Hyperinflation Is Near