Comments on Market Skeptics: Red Alert: Gold Backwardation!!!

I like prima-gold verymuch because it's very beaut...

2009-01-31T07:04:00.000-08:00

I like prima-gold verymuch because it's very beauty
http://www.prima-gold.fusionthai.net

Dr. Fekete, is one of the brighest and smartest gu...

2008-12-07T22:33:00.000-08:00

Dr. Fekete, is one of the brighest and smartest guys you will find on gold market.....

this first in the life event is a starting point to the long gradual painful decline for dollar and other currencies backed by nothing....

Thus to ward off the possibility of your wealth not existing anymore, buy gold.....

Discussion of Antal Fekete's Red Alert is all over...

2008-12-07T09:00:00.000-08:00

Discussion of Antal Fekete's Red Alert is all over the internet.
It is, I think, a great read - maybe his clearest exposition of basis.

I think he's onto something very, er, basic.
But there seems to be a terrible confusion.
It doesn't bother him and it doesn't invalidate his
thinking, it just makes it near-impossible to
really understand him!!

He defines basis as (NearFuture - Spot) while
most everybody else defines it as (Spot - NearFuture) !!!

For private confirmation/rejection I tried to contact Dr. Fekete, but wasn't able to.

Here is the explanation I tried to send him.

I hope someone will either confirm what I'm saying or set me straight!

-Fred Chase

PS
Here is my copy of Red Alert with some markups showing why this is a problem. (Many other Fekete markups are in the same directory.)

That was a very interesting treatise, all the more...

2008-12-06T09:57:00.000-08:00

That was a very interesting treatise, all the more so since the title contained the words “Red Alert” and three exclamation points! The Mogambo Guru would be thoroughly awed by the use of three exclamation points. Nevertheless, the ominous title is an appropriate introduction for Mr. Fekete’s earthshaking conclusion.

I was particularly intrigued by this simple explanation of the “basis,” which if negative, indicates backwardation (Mr. Fekete’s emphasis):

“The gold basis is the difference between the futures and the cash price of gold. More precisely it is the price of the nearby active futures contract in the gold futures market minus the cash price of physical gold in the spot market.”

So the basis, simply put, is the future price minus the present price. But which present price? The manipulated CRIMEX spot price? Even by that standard gold went into backwardation briefly, as Mr. Fekete points out. But what about alternative prices? If one applies the same calculation using, not CRIMEX prices, but “street” and “ebay” prices, then we’ve been in consistent backwardation for quite a while now, because those alternative prices have been 10-100% higher than the futures prices, not the mere 2-3% indicated by CRIMEX prices! Moreover, those alternative prices represent a more immediate exchange of cash for physical metal than the CRIMEX, which in my opinion, makes them an even truer gauge by which to ascertain the “cash” price. The prices people pay on ebay, in coin shops and to online metals retailers are “real” cash prices in the here and now.

I realize I’m slightly mixing apples and oranges here by comparing “street” spot prices to CRIMEX futures prices. However, there is no futures market for “street-level” exchanges of physical metal and cash, and the “street” prices are perfectly legitimate and will become even more so if things get so bad that we have to trade silver coins for goods because nobody will take dollars anymore.

The essay nicely explains why backwardation in gold is so significant, more so than for commodities. Since the gold and silver inventories are so huge compared to new production, backwardation indicates a major shift in human sentiment that cannot be overcome by new production (especially with miners shutting down because the “official” exchange prices are too low).

The essay also confirms what has seemed obvious to so many of us, but which has been vehemently denied: that mints around the world have been reducing availability of precious metal coins to the public because they are having difficulty getting their hands on precious metal! Duh!

The essay also reinforces my belief that mints around the world have sold precious metal coins to create the illusion of public accessibility and imply some sort of government fealty to a “gold standard” in order to bolster their fiat currencies. In the case of the U.S. I believe the U.S. Mint sells precious metal, legal tender coins in part to adhere to the Constitutional requirement that money be comprised of gold and silver. By selling such coins, the U.S. Government can claim to be adhering to the Constitution.

Dave
http://daveeriqat.wordpress.com/

COULD YOU KINDLY ELABORATE. If theres a default th...

2008-12-05T23:53:00.000-08:00