I addressed the backwardation in gold as well as the inverted GOFO rates. Since that time the backwardation has become even more acute. During early trading in Asia on Monday we saw backwardation of more than $1 in the gold market. That is an incredibly high number. Spot gold was trading at a $1.10 to $1.20 premium to the next benchmark paper contract, which is February. That backwardation has narrowed a bit because of gold’s significant advance off the lows. Right now the backwardation is still about 60 cents. So it’s about half of what it was on Monday when it was really extreme and the paper price of gold traded in the $1,140s.
So what Hathaway is saying makes a lot of sense. I certainty agree with his conclusion which is that physical gold in the system is extremely tight. This is also reflected in what are very highly inverted leasing rates. Meaning people are willing to pay a high premium today for spot allocation of gold. That should not occur in precious metals because they are largely hoarded and stored as opposed to being used in industry. This kind of backwardation is highly unusual, and frankly should just not occur.
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