SGM Precious Metals: Global Gold Rush Creating Explosive Bull Market Scenario!

PALM BEACH GARDENS, Fla. - Aug. 12, 2013 - PRLog -- [maxkeiser.com] What does gold backwardation even mean? It means that the spot price rose above the nearest future contract. Reuters reported that ‘Gold went into backwardation in comparison to the 3 month futures contract in early January, this may be cause for alarm’.

This dislocation between the spot & the futures price suggests that physical delivery is vastly outweighing supply.

What is GOFO? The Gold Offered Forward Rate is a daily LBMA published rate used as the cost of leasing gold, when you use the gold as collateral in order to borrow dollars, it is the rate used for gold/USD swap transactions.

Many associate negative GOFO with backwardation, when the spot price fetches a higher price than the nearest futures contract. Sandeep Jaitly writes ‘it seems there is unparalleled demand to exchange dollars for physical bullion- so much so that the availability of bullion to settle bullion obligations – whatever their nature is dwindling.’ For the gold bugs, this is when there is a shortage of physical gold, this physical gold is superior to paper gold in the futures markets.

Why are they concerned about backwardation? Because it means individuals want to get their hands on physical gold now, which it turns out isn’t so easy to arrange. Therefore, ‘officialdom’ need to scare out any physical they can in order to meet demand elsewhere. They hope that by pushing down the gold price as far as they possibly can, gold will appear unattractive. Of course, the opposite has happened.

The acceleration in backwardation alongside prolonged soaring gold borrowing costs suggests that the disconnect between paper & physical gold is about to get even greater.

Physical gold shortage? As our very own Ned Naylor Leyland reported earlier last week, this widening of the backwardation ‘indicates that the physical market has tightened up substantially.’

As we have written in the past, much of the gold market is highly leveraged, Naylor-Leyland explains that ‘what we are seeing now is that the absolutely inevitable ‘run’ on the 100:1 leveraged banking system is truly underway.’

What does it mean for gold if it’s negative? When it is negative it means there is more interest to borrow gold & use dollars as collateral. Gold is perceived as having more value as something to hold, than dollars do. Primarily it means that gold leased out today is worth more than the gold delivered at the end of the 3 months.

As we explained above, the negative GOFO rate means someone wants to get their hands on gold. The further ahead the negative GOFO rate reaches the larger the shortage of gold in the delivery that needs to be made.

There is speculation that the elevated high levels of demand we’re seeing in Asia has emptied the London Market. Many also see the negative GOFO rate as a sign that the bottom of gold will soon be a thing of the past, with soaring gold prices to come.

Not for those who own physical gold! Negative GOFO & gold futures in backwardation is finally evidence that there is a distinct flight into physical gold.

What does this mean for the gold price? The Nov 2008 negative GOFO rate happened around the same time a bottom in gold came to an end. What proceeded was a doubling of the gold price & it reaching nearly $2,000.

Once again we see negative GOFO just as gold returns from a price collapse. This time it has remained negative for longer, suggesting that the problem with deliverable bullion is this time even greater.

What will this mean going forward? Given the negative GOFO rate shows stress on the London market when it comes to deliverable bullion & warehouse stocks in the COMEX futures markets continue to decline, we suspect what lays ahead is a perfect storm for the gold price.

We believe it shows there is a distinct lack of confidence in the paper money system. No longer to investors want to hold paper promises of wealth, instead they prefer to hold real, physical gold/silver.

Hold onto physical gold & ignore the price until it matters.]

The US mega banks for decades now have been secretly colluding to run cover for the dollar devaluation that is the inevitable outcome of the feds fiat money printing policies & in so doing have many times over leased, sold, traded, collateralized, rehypothicated & loaned out hundreds of metric tons of gold to water down the metals appreciation that is the inherent free market response to the act of inflating the money supply. Now these same banks & the fed, who have never been challenged on the fraudulent means by which they manage the USD based global economy, are all of the sudden freaking out because they have recently discovered that China has covertly planned an exit strategy to circumvent the USD mega inflation scam that has been given fancy titles such as bank bailouts & QE.

The world is discovering that the Chinese, who have negotiated to absorb almost 75% of our industrial might in exchange for being our loan shark over the past 20 yrs, have established not only a gold standard trade system to replace the USD, but have also engineered a means by which to shed trillions worth of US T-Bonds that have been doled out to every nation we trade with. This new development brings a major threat to the USD hegemony in that we are witnessing a major shift of western wealth to the east in the form of gold & silver bullion as they prepare for the trade system. This is why the western banks are scrambling to grab every ounce they can through back door avenues such as driving down the paper price of metals in order to snatch up disenfranchised SLV & GLD traders as the Wall Street has the exclusive privilege of exchanging the ETF shares for the actual bullion collateral. These banks are panicking because as soon as they swipe the investors bullion they are forced to hand it out again to honor the COMEX contracts standing for delivery. The banks are fighting the momentum that's sucking western gold towards the east & it is shaping up to be a losing battle on all fronts as the shifting tide is proving to be too strong.

We should really begin to prepare for the control of the global economy to slip out of the grasp of the western banking system & the fed & shift towards the east & their soon to be announced gold backed trade system that almost 150 nations have already thrown their support behind. Be sure that you wont be warned of this development by the corporate media & for that reason we should all begin to pay attention to the facts. What happens to the USD if the world decides to follow China’s lead? We do have an international currency option in our ability to proactively swap out US labor vouchers for physical bullion. This solution puts you in a position where whatever happens, whether that be a dollar crisis, inflation, global dollar run, banking system collapse/holiday/bailins, stock/bond market blood bath or even govt. confiscation of 401Ks & IRAs.