SGM Metals: Permanent Gold Backwardation Coming Soon?!?

Feb. 15, 2012 - PRLog -- silverbearcafe.com reports: [ Most traders define "backwardation" for a commodity as when the price of a futures contract is lower than the price of the same good in the spot market.

In every market, there are always two prices for a good: the bid and the ask. To sell a good, one must take the bid. And likewise, to buy the good, one must pay the ask. In backwardation, one can sell a physical good for cash and simultaneously buy a futures contract, and make a profit on the arbitrage. Note that in doing this trade, one's position does not change in the end. One begins with a certain amount of the good and ends (upon maturity of the contract) with that same amount of the good.

   Backwardation is when the bid in the spot market is greater than the ask in the futures market.

But when backwardation becomes permanent, then trust in the gold futures market will have collapsed. Unlike with wheat, millions of people and many institutions have plenty of gold they can sell in the physical market and buy back via futures contracts. When they choose not to, that is the beginning of the end of the current financial system. Why? Think about the similarities between the following three statements:

   "My paper gold future contract will be honored by delivery of gold."
   "If I trade my gold for paper now, I will be able to get gold back in the future."
   "I will be able to exchange paper money for gold in the future."

They did not trust that the gold future would be honored in gold. And if they don't believe that paper futures will be honored in gold, then they have no reason to believe that they can get gold in the future at all. If some gold owners still trust the system at that point, then they can sell their gold (at much higher prices, probably). But sooner or later, there will not be any sellers of gold in the physical market. ]

The reoccurring theme in the global economy at this point is that a majority of investors are ‘playing the markets’ as if this were just another business cycle that is re-balancing the wealth and that things will get back to normal soon enough. Under the surface we find that there is an epic shift in the overall confidence that things will get back to normal and instead that a new normal is emerging from the wreckage of the largest credit bubble in human history. Throughout history there are multiple examples of a fiat money system that has been pushed to the limits of its elasticity, which has ultimately resulted in the collapse of confidence in that particular fiat money system. The end of the confidence in these systems has, and always will, been signaled by the rush into the physical gold market coupled with the unwillingness of the strong hands holding that gold to sell it at any volume of the fiat currency they wisely chose to escape from. This is when the fiat confidence game is officially lost and the participants of these systems are forced to return back to basics to define wealth with the time tested gold & silver money.

Oddly enough, with countless examples of these fiat money systems and the systemic failure of money substitutes throughout history, it can only be explained through greed the willingness to return time and time again to the failed concept of fiat paper labor vouchers. And yet we see time and time again that humanity is somehow steered back into these fiat money systems and the wealth transfer cycles continue. If you burn your hand by putting it into the flame of an open fire, would you continue to do it? No you wouldn’t but this example of bad choices and the consequences coming full circle within YOUR lifetime, where as the fiat money cycle and its consequences are hidden by history and in past generations. Its no wonder that in a culture that has been conditioned to be obsessed with NASCAR, Hollywood, sports and social media that we have little or no desire to learn about the history (not what is taught in school, but the real history as lived by our forefathers & our lineage) of our culture from the wise elders in our families. It is these people who have the connections to the last attempts to implement fiat money substitutes and the endgame of the failed cycles. They also have seen the consequences of this endgame and the lessons by which one could avoid the imploding fiat bubbles. And yet they are riddled with Alzheimer's before their time and shuffled of to retirement communities to play shuffle board where their wisdom is lost forever more.

Rest assured the current Federal Reserve fiat US dollar system is by no means the first attempt to conquer & confiscate wealth through a piece of paper, but it will surely end up being the most devastating and consequential. You see there have been countless national failures of this system throughout history. There have been many regional versions of this failure as well, but this is the first time we have seen the system convincingly sold to the world as the baseline world reserve currency upon which all other nations would link there national currencies. It is this collective dependency on the US dollar and its viability that has permitted the abuse of the system and the illogical economic policies that have been carried out up to this point to be tolerated. With all of the world pretty much having a vested interest in the dollar continuing to function (they are basically being held hostage now for fear of the collapse of their respective economies) we have been forced to ride the roller coaster that has inflated & deflated credit and asset bubbles with violent outcomes to the average persons wealth without resistance. The willingness to go along with these distortions in economic law through monetary manipulation have come with considerable consequences, but nothing like what we will see when the world decides enough is enough and that day is coming soon. Remember that while history is a good guide to what happens when a fiat money system fails in a nation state, there is NO source of knowledge or example of what happens when a system that has NEVER succeeded on a nation state level is forced onto a global scale and fails. For this reason the endgame rush into the safe havens of gold & silver, that will undoubtedly protect the strong hands holding those precious metals, will come in waves as these truths are discovered by investors like yourself who are looking for answers and with those answer alternatives for their financial security. As you have seen there have already been a few waves of awakening that have taken the gold & silver to considerably higher prices than we have ever seen before. These waves of price increases will only accelerate from here as the convulsions in the global economies get worse and investors seek out knowledge as well as alternatives for their monies. Know that at some point soon enough we will reach a point where the holders of precious metals will be unwilling AT ANY PRICE to trade their biblical money for paper labor vouchers! Some have already reached that point, but they have been holding their gold since $175 and silver since $1.56. This is permanent backwardation.

What was simply a short term commodity play in gold & silver during a stock market down cycle, has now become a wealth preservation tool once again. As these investors see their precious metals holdings multiply exponentially they will become less willing to flip them for a quick buck for fear that the ever increasing demand will leave them out in the cold as they will be unable to repurchase that gold or silver in the future to replenish their holdings. This is the point where the pendulum has swung too far and the mindset of investors will be one of holding the precious metals as the definition of their wealth as opposed to a commodity to make a quick trade with. Why do you think ALL NATIONS & ALL CENTRAL BANKS HOLD METRIC TONS OF GOLD IN RESERVES?!?

# # #

SGM Metals strives to offer not only wealth preservation precious metals investments to offset weakness in the economy, but to help educate our family of clients to better identify the threats to their financial security.