freefallOur friend TF from TFMetalsReport has published a guest post arguing that the current backwardation in gold and silver in a falling market is signalling that bullion prices are about to experience a 2008 style collapse. 

The Doc has long believed that the gold and silver futures markets would experience a massive take-down immediately preceding the coming collapse and the metals’ largest gains.  Legendary gold trader Jim Sinclair recently stated the same, predicting an imminent wash out that would test the resolve of even the staunchest PM bulls, prior to gold heading to $3,500/oz.

Is gold and silver backwardation in a falling market signalling a washout gold and silver collapse is imminent?


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Guest Post, via TFMetals:

“It is a matter of basic arithmetic/economics that there is a bullish and bearish scenario for both contango and backwardation. Putting aside which scenario I find most plausible, I find it alarming when commentators show no awareness of the existence of the other argument.

Specifically, backwardation in the current environment of falling prices is precisely what one would expect to see in a sector which is about to crash. The lower-and-falling futures price is telegraphing the collapse of the market.
I’m not meaning to single-out you and Andrew Maguire here, as this is something I’m seeing/reading everywhere. I just happened to be listening to your clip today. However, if the bankers should be successful in engineering another Crash-of-’08 collapse in metals prices, all such commentators will lose credibility.
Just like all the mainstream clowns in 2008, they will say they were “surprised” by the collapse of prices – despite the fact that futures prices were telegraphing that price-collapse through backwardation in a falling market.
Note backwardation in a rising market implies the opposite. It implies precisely what you, Maguire and others have been saying — a “tight market”.

Obviously metals prices should be going straight up given all the new-and-escalating money-printing. However, when we’re telling people “what the market is saying” (these absurdly manipulated/fraudulent markets), at the very least we have to acknowledge what is being suggested: that bullion prices are about to collapse.”

 

SD Bullion

  1. I read that yesterday as well and a chill went down my spine. The bottom line here, is in a bullshit market anything is possible. If things crash, I would not expect it to be for a long time because you’d be apt to see production fall off a cliff, and premiums skyrocket.
     
    I’m praying for the day for a force majeure in silver or for some large industrial player to say – hey, we’ve shuttered production because we have no silver.

    • Yes, Turd is our friend, but todays traditional NFP metals dump lasted seconds. These ham fisted manipulations are getting embarrassing, and are unconvincing.
      Backwardation and falling (paper) prices mean higher prices. Front month paper is falling because of manipulation. Backwardation occurs because no one is going down COMEX’s primrose path of paper for phyzical.

    • regarding massive inflation, absolutely, the gun is already loaded. the money is sitting parked on bank balance sheets allowing them to be delever and allowing them to launder garbage mortgage backed securities.
      All it is going to take is for that money to hit the system and we’re done. The velocity of money has plummeted, or we’d already be farked.
       

    • Most of America has no memory of Gold and Silver being real money. They are far too busy fiddeling with their I phone etc to be concerned. They will wake up, or I hope they wake up, for any meaningfull change to occur. 
      The largest question remains: Will America decide that I Phones and Starbucks are not really neccessary, or have trends and popular culture become too ingrained to set aside?

    • “They are far too busy fiddeling with their I phone etc to be concerned. They will wake up, or I hope they wake up, for any meaningfull change to occur.”
       
      Most of America has NO idea that hurled bricks are dangerous… until one slams into their forehead.  THEN and only then do the synapses spark a bit and a glimmer of realization hits.  Otherwise, there would be MANY more people who are prepping for bad times and who would be WAY better off when a hurricane, tornado, earthquake, or flood comes along.  These people spend thousands on their i-crap, yet never seem to be able to afford to take care of themselves in extremis.  They are content with the lie that government will do it for them.
       

  2. I don’t see a decimation of prices lasting lng myself, I certainly hope not. If the multiple stories that silver and gold are in relatively tight supply, in this case as a metal that is NEEDED ( this is for end users not investors ) it makes perfect sense to be in backwardation. If an electronics maker, or jewelry maker, or solar panel maker needs their metal, they won’t take a free return on the possibility of not having their metal next month, and shutting down their operation.
     
    Now, reality? Short term we could see a pretty bad dip.

  3. It doesn’t take that far of a fall for the miners to stop production. The thing with silver is most of it is by-product mining however I remember reading somewhere that the average “total” cost per ounce, including cash costs per ounce is somewhere in the $26.50 range. If silver were to fall to $25 for any length of time, there would be a significant amount of silver to all of sudden become uneconomical to extract and silver prices would rocket higher…. The Fed understands this and this is why silver can’t fall below $28 for any length of time because the margins would be squeezed too hard for some of the higher cost miners.
    The other side of the coin is that most silver is by-product mining such as SLW’s silver stream and those mines would have to take a significant hit to copper for silver to cease production. 

    Although I personally believe we have hit the bottom in the beginning of March with the capitulation, there is still possibly room for downside as we have stalled at current prices and backwardation is still in play in a falling market like Sinclair and TF have stated. My personal opinion is that this should be the bottom from a logical standpoint, but keep in mind there is no logic when the Fed prints confetti at $1.01 Trillion per year and our Fiscal deficit is in the $1 + Trillion range yoy. 

    There are a number of geostrategic events that could set off a total metals buying spree including North Korea’s crazy cuckoo, Syria, Iran, Israel, Egypt, or a mix of these events.
    The bottom line is that the dow/SP have surged higher on weak fundamentals and anemic growth prospects. It is due for a correction as investors have literally been forced out of the traditional “no-risk” investments like treasury bonds and into equities because of the atrocious yields offered. Retirees and savers have literally become risk takers and chasers. Eventually they will realize the risk of equities and funds will pour into safer havens like gold and silver. I believe this catalyst to happen by June,July, or August of this year. I originally thought it was going to happen in December of 2012 predicated on the Basel III accords and Gold becoming a Tier 1 Asset. However, the bankers in the BIS didn’t allow that to fall through and now market forces are going to have to take this into natural momentum. 
    Gold price has lagged the traditional correlation to the total debt for around 6 months now and it has left a significant gap for it to catch up to. This will happen just as it happened in every prior period in the past after lengthy consolidation and base periods where money was moving from weak to stronger hands. Just my latest 2 cents.

    • “Retirees and savers have literally become risk takers and chasers. ”
       
      Some have, others not.  Those not are burning their capital for living expenses.  They know that this will be a very serious problem for them at some point but not immediately.  Perhaps they are hoping to expire before their savings do?
       

    • Thanks SilverDagger. 

      I agree Ed_B. I should have prefaced it with the seniors and retirees that have taken the red pill but yet don’t remember the ultimate vehicle to save one’s purchasing power.

    • I hope that you don’t think I was being critical, ich1baN.  I enjoyed your post and was only trying to add to it by relating some personal knowledge of what some older people are doing these days.

    • @Ed_B

      Hey Ed_B, not at all. I took your comment as constructive, I know you from your other posts and appreciate your response. Take care Ed, and lets hold tight through these capitulations.

    • OK, good.  One thing that can be overlooked at times is that we here are pretty much all on the same side.  We do have different experiences and points of view but that is a great way to get a new perspective on things.  I have lost track of the number of things I have learned here and very much appreciate this web site and the citizens here.  I know that he probably does not hear it enough, but… THANKS, DOC!  :-)
       
      You take care, too, Ich.  Hanging on tight is good advice.  We will all need to do that in the coming months and years.
       
      I agree with those who say that it looks as if the bottom is in for gold prices and have recently been buying some gold as well as my usual silver.  The cartel tried to slam gold to $1550 but failed to achieve that level.  This is an important fact but has been over-shadowed by the pull-back in gold prices.  The more we hear about “gold’s run is over” and other such talk, the more convinced I become that this is just another cartel talking point and not anything of substance.  
       
      Now we seem to be in a holding pattern.  Lots of volatility will not surprise anyone although it looks as if we are range-bound for the moment.  Silver is stuck at $28.50-$29.25 while gold is stuck at $1570-1600.  I do not know what will kick us out of this range but something that can do it is probably on the way as we speak.  Could be the continuing budget / debt debate in DC or a turn for the worse in Europe or Japan.  Many economic and financial problems in the US, UK, EU, and Japan have been papered over but not fixed.  While the problems we have are clearly systemic the solutions offered are all cosmetic.  This does not bode well for the future.  Those of us who see this, instead of the rosy picture portrayed by the TV media, are doing what we can to prepare for hard times.  The fact that we all have our own plans for how to best accomplish this is also good news.  By relating to others what we are doing and why, we can all get a better grip on things and we can add to our list of things to get done or to improve.  In the end, we all benefit.  :-)
       
       

  4. If we get a real price smash, one that takes us below 26, it should be short lived.  The banks will have met their price objective.  Lots of spec longs will jump in.  Silver will then be allowed to rise.  It won’t be 1 or 2 years.  It will be months, and then things will be different.  We will see the price trend higher.  Real gains will then be in front of us.  Where we are now, the banks could force the market to trade sideways for months and months.  Wearing us out until they get what they want.  Whatever that is

  5. I’m still personally convinced that TPTB know that we are likely to have a crash imminent, and they want to keep metal prices low, so that if and when the bond market, or stock market shit the bed, metals will automatically do so in sympathy for a short time.
     
    That being said, I don’t know exactly what goes on in the mind of a lunatic.

    • “That being said, I don’t know exactly what goes on in the mind of a lunatic.”
       
      You see, Dirt, there really IS something for which we can all be thankful!  :-D
       

  6. I read article after article that said silver would be $60 – $100 last year.  The silver pundits are beginning to remind me of banker pundits in 2008 when they stated this downturn was just a blip.  Now 5 years later and the economy continues to slowly drag along even with QE. 
     
    Maybe this is a lesson to everyone the power of unregulated cartels.  They can make a common diamond worth $10,000 which should be worth $500 or inversely they can cap prices as seen in the silver market.
     

    • That they can, PB, and we have no way of knowing just how long they can manage such feats.  For me, the implication of all the stories about $60-100 per oz. silver is that this is what would be happening in a FREE market.  Unfortunately, the free market has a lot in common with The Tooth Fairy these days… a serious divergence from reality.
       

  7. “Specifically, backwardation in the current environment of falling prices is precisely what one would expect to see in a sector which is about to crash.”
     
    Specifically, because one would expect to see this happen, it will NOT happen.  The 2008 crash was not so much engineered, as it was a result of a crisis resulting from banks going under.  Is anyone even remotely talking about banks going under today?  Without a major banking crisis to use as cover, it is extremely unlikely that Gold and Silver prices could repeat the same performance of the 2008 price drops.
     
    Predictions like this only serve to instill doubt into the minds of people new to Silver and Gold.  Rather than make such sensational predictions, it is much better just to discuss the merits of Silver and Gold as sound money, and let the people make up their minds for themselves.  When people truly understand the merits of saving money in the form of physical Silver and Gold, their prices in fiat paper currencies will be secondary considerations at any given point in time.

  8. Jim Sinclair also stated that the low would be in before March 27. Well, let’s just wait and see. So many people say so many things and Jim Sinclair has made bad short term predictions before. 

  9. In this new world in which we find ourselves living in, true is now false, good is now bad and bad is now good, etc….  People in a famine would now desire pictures of food and water on paper rather than actually having real food and water in their hands. I have been counting on the metals to go up as they should in this enviroment to pay back taxes owed on my home and the only thing that is rising is the fines on my delinquent balance owed while the metals I hold continually decrease in value. I will have to sell twice as much metal to pay off my bill instead of 1/2 as much as I thought I would have to sell.   YHWH God will make up the difference to the Banksters, Government theives and manipulators when they arrive in His courtroom, but I guess in the meantime, I am screwed for trying to do what was sensible, honest, true and good to protect myself. I am running out of time.

    • mayeeden – I’m truely sorry for your situation. You weren’t betrayed by investing in metals and trying to do the right thing. Even if prices go down even further, I’d rather be in metals than in paper because no matter how big a “whack” metals take, to me it’s still the only “true money”. The first time I started my metals portfolio back in the 90′s, I’d built up a really impressive stash. Then I lost my job (I’m in the oil & gas business) when crude prices bottomed out. I ended up having to liquidate almost all of my entire stash in the late 90′s when metals prices were really low. I hated to do it, but I needed to eat and pay bills. So I can sure relate to your situation. I rebounded financially years ago and have quadrupled my original stash at this point and dump every spare bit of change into metals no matter what the price is every chance I get. All I can tell you is just do what you have to do to take care of your financial obligations, and keep your chin up. You’re in good company here. The banksters, government thieves, and manipulators will get what is coming to them soon, maybe not as soon as we would like it to, but the good Lord will deal with them whenever that time comes. I wish you all the best and hope everything turns out good for you. Hope this was helpful to you.

    • Sorry to hear of your current situation, Mayeeden.  Problems of that kind can be difficult to handle.
       
      One basic rule of investing is that one does not invest money that one may need in the short term, no matter how great they think their investment idea is.  We never want to be forced to sell an investment when it is low in price, especially if it is below what we paid for it.  
       
      Another basic rule is that one should have an emergency fund equal to a few months living expenses.  Yes, this can be difficult to arrange but it is important that we do so.  Life has a way of landing unseen punches to our jaw, just when we least expect them.  Having some free cash with which to deal with such problems really helps cut them down to size.  
       
      I am VERY glad that you rebounded from your PM debacle, SP, but wonder if you have taken the necessary steps not to repeat your late 1990s experience.
       

    • Thanks for your kind words Ed_B. As far as necessary steps that I’ve taken not to repeat that late 90′s experience, that’s part of why I log on here at SD because this place is full of people that I’ve been able to learn a great deal from. Even though I started stacking in the early 90′s, I still consider myself an amateur. Living in the southwest and being employed in the oil and gas industry, even though it is booming all to heck right now, does not insure you infinite job security as the thought of in past boom periods. I’m good with Deviled Ham sandwiches for dinner, Campbell’s soup, and whatever else I can scrounge up in my cupboard even though I can afford a fine meal in a nice restaurant. The trouble is that with a boom, you can’t go to a good restaurant in town without a 30min wait and crappy service and justify spending $30 per meal for the sub-par dining experience. My tactics at lunchtime include places that are not busy because the food sucks (but is consumable) and places that you are not required to leave a tip. Clothes get worn more than once (not underwear) before they are washed because working in an office all day does not justify a change of clothes every single day. One wash cloth per week, one bath towel a week (just keep the air cool to prevent molding) and that right there saves a heck of a lot when doing the laundry. Not many people can stomach that, but when the SHTF, you’d better get used to finding different ways to live other than your easy life. I’ve been through rough times and I’m preparing for the impossible. That’s
      about all a fella can do. I learn a lot from people here and I can’t give enough thanks for all that I’ve learned from. I hope I’m taking the necessary steps, as you say.     Panther

    • Thanks for your thoughts as well, SP.  Sounds to me as if you and I have similar financial ideas.  My grand parents were young adults and my parents were kids during The Great Depression of the 1930s.  They have taught me more than I ever learned in the universities I attended, although that was considerable as well.  Book learning is one thing… good but not great.  Life experience is… priceless, and a lot of that was shared with me and hoarded like the gold that they are.
       
      I used to laugh when reading the various financial magazines and how one “must save 10% of one’s income for retirement”.  At that time, I was saving just over 40% of my income for retirement.  My plan was that SS might not be around then, so it would be good to plan for that by saving all I could.  Then, they would come out with, “You will need 70-80% of your pre-retirement income in retirement”.  Huh?  If I was already living on less than 60% why would I need 70-80%?  I guess that they could not imagine how frugal some of us can be.  During the 33 years that I worked before retiring, I probably went out to lunch about 10 times.  The rest of the time I was brown-bagging it.
       
      Agree completely about restaurants.  We go out once in a while but really prefer to eat better food that is better prepared and less expensive at home… especially in the spring-summer-fall times when I can fire up the grill!  :-)
       
      Also agree on laundry.  Undies get changed out  daily but other clothes can be left hanging to “air out”.  This works fine unless I am working in the yard or garden and sweating.  Those clothes get washed ASAP.  
       
      “I’ve been through rough times and I’m preparing for the impossible. That’s about all a fella can do.”

      Indeed it is.  While I have not been through any rough times, I have a wealth of family history from those relatives who have.  One of my better traits is that I CAN learn from the problems and mistakes of others.  I do not have to repeat their experiences before they seem real to me.  There are some very serious storm clouds on the economic horizon.  No one knows when they will arrive but arrive they will at some point.  It will be a lot better to be ready for it when it hits than not.  Most on here agree with this and are doing all they can to get ready as well.  The only problem I have with our SD clan is that we are well dispersed.  It would be great if we were all in an area close enough together to support each other.  But, maybe that is not our mission?  Maybe we are the seeds that will blow across the country and plant a mighty forest of ideas?  :-)
       

  10. ok a couple of differences between now and then, firstly, much more paper is floating around now vs. 2008, next, the industrial and investment physical demand for Ag has increased by leaps and bounds, and lastly, ore grades have depleted and oil is higher.. it is plausible that can happen (a massive take down) but imho unlikely… hey I would love to see it I have dry powder ready,  but wouldn’t matter the premiums would adjust accordingly and it wouldn’t be likely that I could take advantage of the take down anyway ..oh did I mention 90% is becoming harding to find..

  11. No one believed me in October when I said we would see silver under 30$ again. NAW ORION YOU CRAZY!!! I got a lot of that but here we are. I think we will have another mini-crash in the stock market and I would look to see silver spot at around 18-23$
     
    That’s my theory anyways, another 2008 like market crash but it will papered by the fed like something we have never seen and it will probably send the world into a deeper recession/depression. But I don’t think the system will collapse like we are expecting (not quite yet anyways.) I think they need to have another mini crisis to gain some more totalitarian control and fleece the people into fear just a little more. Americans are becoming a little more brazen and the TPTB will be sure to pull the plug on any pre-conceived notions. Funds will dump paper SLV and GLD like mad. I would expect this anytime this year and then would expect the real collapse in 2014-2017.
     
    Like I said though just a hunch. I think we will have another “Crisis” until the real big bodda boom.

    • “I think we will have another mini-crash in the stock market and I would look to see silver spot at around 18-23$”
       
      If that happens, it is likely that we will see the very same thing the last time the paper price plunged… and that was that no phyzz was being sold at that price.  When silver dropped from $17ish to under $10 an oz. it was a great price but you could not find ANY phyzz to buy at that wonderful price.  Anyone who had some was holding it and not selling.  It was not until prices rose to $16 or so that phyzz started moving again.  $18-23 seems awfully low to me but who knows?  Almost anything is possible with the right rigging of the market.  Of course, that does not mean that anyone will be selling at that paper price.

    • Ahhhh Charlie… You are a great guy!! I loved your snow video I was laughing the whole time. I was like Charlie about to get swept up in a snow tornado by the looks of it

    • M45,
      Poor Soul Orion doesn’t realize that when we have the market crash that both Silver and Gold will drop drastically, but skyrocket back up with all humanly necessary commodities.

  12. ***Don’t remember what user just called this site a scam and that we are stupid to wait for the big crash to buy…. But this reply was to him. I think he erased his comment.

    This site is a scam? Silver Doctors?
     
    Dude some of us been stacking for 50 years since they took us off silver money. I don’t hold any currency in the bank except what I need to pay bills and groceries. I’m not trying to come across as rude but you sound new to the game.
     
    You know the fundamentals, you know the price manipulation, you know the silver demand and shortages at the mints, you know the dwindling above ground supply and how silver never adds a single ounce to the above ground reserves, you know what real money is and what intrinsic value means and also understand how purchasing power works. Then you should be constantly stacking not sitting on the sidelines for anything. I am never on the sidelines, I’m already running onto the field with my helmet on before the coach can call me back.
     
    The only people that ever hold any resentment towards silver or silver advocators seem to be the ones that are either new and can’t understand the raids/price volatility or the ones that jumped into the mania price in 2011 and are all pissy now because you believe you were ripped off. But like I said once you understand the fundamentals and that Trillion dollar deficits will continue while the printing presses will never stop until the music does, then you should always be buying, especially anything under 30$.

    • Good comments, Orion, I agree.  My thought is… buy or do not… it matters to me not one whit.  I KNOW what I need to do.  If someone else does not, it is not my problem!  ;-)
       

  13. Realize no one has the crystal ball, but what I am gathering is to save some dry powder until the stock market takes its plunge, silver should fall.
    Do not get me wrong, have placed two orders within the past four weeks and will most likely add another order at these prices.  Want to have the powder on hand to for the big one.  Does this make sense in this illogical market?

    • “Realize no one has the crystal ball, but what I am gathering is to save some dry powder until the stock market takes its plunge, silver should fall.”
       
      It might… and then again, it might not.  If gold and silver are perceived as “safe havens”, money could flow out of a plunging stock market and into them.  Depending on the amount of money doing this, gold and silver could shoot up, rise a little, or even fall a bit.  In 2008, everything dropped for a while, including PMs.  Cash was king for a time, as is often the case when things are really screwed up.  People want to see what the market is doing and where it is going before they part with their cash.
       
      “Does this make sense in this illogical market?”
       
      I am thinking that the market is not only illogical, it is irrational.  Because of this, it is not possible to make much, if any, sense of it.  Like you, I have been buying PMs lately, both silver and gold.  Have received two orders in the last month and have two more in progress.  Will there be a big price crash in the near future?  Who knows?  What we do know is that the fundamentals for both gold and silver are amazingly good right now, so anyone who invests based on fundamentals should be buying now.  If PMs fall further, keep buying.  The Chinese, Indians, and any number of central banks are not slacking off in their gold buying.  I don’t think that they would be doing this if they did not see a lot of unrealized value in gold.

  14. What I Believe. By Ranger from Texas:
    We as the body of the great physical “Silver Holders International Rational/Irrational Organization” Exercising our minds to accept 1 Step forward and 2-3 steps backward. This is called “Tangobackdation” The abbreviation is BS (Bullshit).
     

  15. Nuts in the Hand Vise:
    Could be wrong about this possible “Black Swan”. What do you think would happen when the Chinese acquire enough Gold to back their Yuan and then sell off a couple of Trillion dollars of U S Treasuries even at a loss? Uncle Ben could not even scratch the surface in the buys to keep the bonds interest rates from going ballistic. Hmmmmm?
    Just a thought, Yours?
    Ranger

    • Two thoughts come to mind.  First, the Chinese are selling off dollar denominated assets as quickly as they can without upsetting the markets.  Most likely, they are doing this through hundreds of agents dealing with thousands of brokers around the world.  By keeping their selling to small lots, they slip into the usual daily market buying and selling noise and their activities are effectively camouflaged.  This is important because, while they do want to sell so they can diversify into other assets, most notably gold, but also real estate, mines, oil fields, farms, and ranches to name but a few, by maintaining a low profile can do so with minimal market turbulence and loss of value.  So, when the time comes for them to back their currency with gold, the announcement itself will provide all the forehead smack power that is needed to get the attention of the entire world… AND… they will be free of any US shrinking dollar problems when it happens.
       
      This then leads us to thought #2, which is that this action on their part could collapse the US dollar as many countries around the world repatriate dollars back to America, causing hyperinflation almost immediately, and buying whatever US assets they can, while they can.  With a collapsing dollar, the remainder of the UST bond market would similarly collapse as investors of all kinds scramble for the exits and fail to get out while their bonds still have some value.  
       
      Checkmate.
       

  16. The BANKSTERS are succeeding at promoting fear propoganda.
     
    The market is a hype, based on FED money infusions, but not based on corporate earnings nor consumer confidence.
     
    The Banksters can not allow gold and silver to compete with their worthless paper. So they have to keep the fear machine running.
     
    Is it working?

  17. Mayeeden  I read your post with an eye to the situation both as a former banker and as a regular human being.  Your home country?  Which one is it?   What sort of laws are in play that not only appear to make it impossible to get rid of your property tax debt but have fines that increase that debt load? It sounds a little like the USA.  If it was me, before I sold my physical metals, I’d consult with an attorney to see what options are available. Sometimes property taxes are abated due to financial hardship.  Fines seem excessive but it is not uncommon for the property taxes to accrue along with interest.  In most countries bound by certain equitable debt discharge laws, you could find an avenue that would stop the fines and penalties and allow you to retain your precious metals. 
    The other thing that struck me today was that I have had some momentary uncertainty as to whether the gold prices will hold at just below $1,600 or if we might see a $200-300 drop in the next few months if a potential banking crisis came about. My only litmus test in this regard was the big drop in PM prices when Lehman crashed.
    The Fed said that the stress test of the 18 mega banks showed these institutions had something on the order of $480 billion in capital buffer.  This buffer is alleged to be sufficient for these banks to survive a major event or loss.  That’s all good and well but we’ve already seen that happened to Banca Monti Pasci with its 4 billion derivative loss and went through 4 bailouts.  Some banker and political heads will roll. The head of communications committed suicide the other day by jump out of a window.  Hmmmm?
    JPM and GS have between $1 and $2 trillion in capital base.  Their derivative exposures are between $55 and $70 trillion EACH!, with leverages of between 30 and 50 to 1.  One slight jostle would crush the bank’s equity and capital asset base, destroying the bank almost instantly, just like BMP was destroyed, and bailed out, 4 times.  Bailing out JPM or GS would require trillions or not tens of trillions, making that ridiculous little $480 buffer spread over 18 banks look like a speed bump.
    If any one of these banks, or a few Euro banks collapse, the gold and silver market prices could drop 25-30% is short order as anything that could be liquidated would be. Not that the western banks have much gold but the downdraft effect on the equities and PMs could be substantial.
    If I had any idea of how, why, when and if this could happen, I’d sell every ounce of gold Monday, sit in paper until it came to pass and then buy back in.
    There one problem in this scenario.
    No one know the answer to that question, least of which me. Besides which, I would have great uncertainty as to which bank I’d use to hold the cash.
    I guess I’ll sit right. Doc said he just bought gold for the first time.  That’s good enough for me.
    I did sell some gold today to get cash for a decent deal on a lead future sale.  We’ll see how that works out.  It could be a profitable trade all in all

    • “JPM and GS have between $1 and $2 trillion in capital base.  Their derivative exposures are between $55 and $70 trillion EACH!, with leverages of between 30 and 50 to 1.  One slight jostle would crush the bank’s equity and capital asset base, destroying the bank almost instantly, just like BMP was destroyed, and bailed out, 4 times.  Bailing out JPM or GS would require trillions or not tens of trillions, making that ridiculous little $480 buffer spread over 18 banks look like a speed bump.”
       
      Agreed.  But add to that, if JPM and GS cannot be bailed out, they WILL collapse… and like giant redwoods, they will take down everything in their path when they fall.  These mega banks are so interrelated these days that there could be many banks, brokerages, and insurance companies tied to them and suffering their fate as well.  The only big bank that is not hog-tied to the derivatives mess seems to be Wells Fargo.  I read somewhere that they have $35-40B in derivatives exposure.  Given their capitalization and profits, this is not very much.  They would survive a derivatives collapse based on just their own holdings.  What interlocking deals they may have with other big banks that do have a lot of derivatives exposure I do not know.  It is possible that they could have big problems in a derivatives market general collapse.  One thing is certain, however.  If the Humpty Dumpty that is the derivatives market actually does fall off of the wall, neither all the King’s horses nor all the King’s men will put poor Humpty back together again.

  18. All…there is another side to the gold market that is rarely written about because it involves Islam.  It’s complicated, but to summarize:  the backwardation in gold is not a collapse signal as opined by the often wrong TFurgeson of TFMetalsReport. Gold backwardation is caused by OPEC money flowing into gold.  OPEC cannot earn interest(usury).  So, they sell the gold forward and they earn a contango(carrying cost).  It’s technically not interest, so it’s OK from a religous standpoint.  When the gold market goes into backwardization it is akin to he yield curve flattening out.  It is an interest rate event, not a sign of shortage.

    • It would seem that Muslim religious teachings do not differentiate interest from usury.  Paying a small and fair fee for the use of someone else’s money seems like a good deal for both the borrower and the lender.  Paying very high and unfair fees is not.
       
      I did not know about the gold-OPEC connection, though, so thanks much for bringing that up.  It makes perfect sense.

  19. So correct me if I’m wrong, but this article seems off to me. Speaking as a non expert I couldn’t help but wonder why this was written. From reading Turk, he seems to think we’ve essentially reached a bottom. Sinclair says we’ve reached a bottom and that people saying we’re going lower are wrong because the bottom is in and were going up. Perhaps I misread, but I thought Dan said that there IS NO backwardation and that to believe so is to misunderstand things… So… What’s up with this post???? 

    • @proverbs1616 

      It appeared to me after reading Sinclair’s other investment alerts that Gold is currently at its bottom, but other like TF are in the camp that a further take down will happen. I just can’t find this highly likely because just like the silver miners, the gold miners are at a high average “total” cost per ounce and if they get squeezed for too long then a big amount of supply will disappear from the market and the bankers will have destroyed their own strategy of keeping the Dollar in the driver’s seat. 

      A decrease in the supply of gold will shoot gold much higher, so the bankers want to keep it suppressed but they know they can’t push it too low because it will defeat their own goal; that is why they are keeping it a range as much as they can, making long-time holders complacent and new investors hesitant because of the lack of returns, thus pushing people further into equities. However, market forces are bigger than governments and eventually things unwind and black swan events begin to unfold.

    • Prov16:16….Always liked your screen name.  Agreed, knowledge and insight are more valuable than gold and silver.  To that point let’s see if I can offer some.  

      Backwardation in gold is an interest rate event, not a signal of shortage. (See my post above.). What you want to look at, instead, is the gold basis. This gets technical, but to summarize: they discount the gold basis to increase the yield. When the spread increases like it has been you know the market is about to break and surge higher. Trader Dan, as knowledgable as he is, is a trader, not a value investor and he doesn’t look at the gold market through the lens of the gold basis. That’s why he gets a bit of course in his analysis. But, here at SD we are stackers (value investors). Basis is the key.

  20. Thank you ichiban and “ugly dog”…
    thanks for the compliment on my name… Solomon would be honoured, and the glory would go to God.
    much appreciate the info… I’m very new to all this. Does this have anything to do with Mr. Sprott’s silver shortage claims, or is this a whole different realm?
    As for Muslims, this is the problem with legalism in religions… legalism teaches that one earns his way to God by following strict rules, and if you can find loopholes, good for you. Christianity is all about grace, not rules, and it is about what Jesus has DONE for us, not what we can DO to earn God’s favour.  It’s all about His atoning work and having a one on one relationship with Him.
    so, sure you can’t charge a bit of interest, but you can treat your wives like pieces of chicken and divorce them leaving them to be social outcasts with no means to provide for themselves. Islam is cruel, not just because it teaches jihad, but because it is about rules that can be circumvented, as opposed to a loving relation

    • Yeah, silver is a different realm and Sprott is an expert.  Silver is in short supply as there are no above ground hoards of silver.  However, central banks and governments have stockpiles of gold.

  21. On Friday Jim Sinclair stated the following at King World News:
    This is all going to come home, and it’s coming home in 2013.  We already set the low in gold.  We are now on our way to $3,500.  The opinions that gold and silver are going significantly lower are not correct.  There have never been more signs of a bottom in a market than you see presently. 

    http://kingworldnew.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/8_Sinclair_-_Gold_War_Rages_As_Bulls_%26_Bears_Continue_To_Battle.html

  22. Who knows if the bullion prices are about to collapse? Although, the stock market is in all-time high and plus, the situation is similar to the 2008 economic crisis. But, will this one signify the collapse of the USA? There were a lot of predictions saying that 2014-2015 would be the end of America.

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