The Phaserl


What Drives Negative GOFO and Temporary Gold Backwardation?

by Keith Weiner,

I coined the term temporary backwardation in March of last year. This is what I said:

But in the “new normal”, post 2008, the expiring gold or silver future often flirts with or even slips into backwardation for a period before expiry. This is anything but normal. It’s not a sign of imminent financial Armageddon, but it is a sign that beneath the surface there is a growing rot in the core of the system.

I used the word “temporary”, not to imply that this pathology would stop (I said it was the “new normal”), but to refer to the fact that each contract spends a short time in backwardation before either rising out of backwardation or expiring. I used the word temporary to distinguish from permanent backwardation, which will affect all contract months—the farthest first and most severely. Look at this chart of crude oil. When that happens in gold, the end of the dollar will be near indeed.

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