The Risk Of Continuing Gold Backwardation

Courtesy of Claudio Grass, managing director Global Gold Switzerland.

We came across an interesting article published by renowned Prof. Fekete. In the article he elaborates the current backwardation in the gold markets and explains what effects a prolonged and continuing backwardation could have not only on the gold markets, but on the economy as a whole. We would like to quote two sections from his paper, to give you a taste of the effects this could have:

But no sooner had gold futures trading stopped after the advent of permanent backwardation than gold was no longer to be had in exchange for U.S. Treasury debt. The entire outstanding debt of the U.S. was worth not one ounce of gold. Not one gram of it. It is insane to pretend that this would make no difference in world trade, as pretended by official doctrine.

In fact, delivery of gold will be suspended under the force majeure clause. Short positions will have to be settled in cash, to be made available by the Fed’s printing presses. Gold futures trading will be a thing of the past.

In connection with the second quote, we would also like to draw your attention to an article we recently wrote about the COMEX. While not concentrating on the backwardation issue like Prof. Fekete, we give a detailed overview of how the COMEX works and where the major risks lie. The questions that we addressed in the article The Truth About The COMEX:

  • What would happen if all open contracts on the COMEX would not be offset and physical delivery would be demanded?
  • What would happen if an extraordinary number of people demanded physical delivery?
  • What happens if an extreme, let’s say 20%, price jump occurs over the weekend?
  • What other risk does COMEX trading entail?

Taking the above mentioned risks in connection with paper gold trading into account we are confident that the only way one should invest in precious metals is by unencumbered physical ownership ideally as far away as possible from the banking system as possible.

Read the full version of the paper authored by Prof. Fekete | Read our article The Truth About The COMEX

Global Gold offers investors the possibility to acquire and safely store physically allocated gold, silver, platinum, and palladium in Switzerland. We believe it is every individual´s right to have the protection of a precious metals portfolio. Financial security for the global investor has never been more important. Read more about Global Gold Switzerland.

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