The threat of permanent gold backwardation is one that, in my view, casts a dark shadow on the future of our civilization much the same way as the disappearance of gold from commerce cast one in 476 A.D., the year when the Western half of the Roman Empire collapsed, world trade succumbed to barter, law and order broke down, and centuries of Dark Age descended upon Western Europe.“MY CRUSADE TO FEND OFF PERMANENT GOLD BACKWARDATION” by Professor Antal Fekete:
The Chicago Mercantile Exchange (CME) (or “the Merc“)
The July farmer expects to harvest 100 bushels of wheat in October, the current or spot price is $5 but the future October price is $7 – that’s Contango. There is a drought, the expected supply shrinks, the spot price is now $8 while November December futures are back to $6 or $5 – that’s Backwardation, the demand for the existing supply let’s the farmer take the $8 and tear up his contract (hedge) for the $7.
All physical commodities work this way you either have the pigs or you don’t: OCT 19 Hogs are at $66.525, up $3.000, DEC 19 Hogs are at $66.225, up $2.850 FEB 19 Hogs are at $74.175, up $2.750 — provided by Brugler Marketing & Management
Gold futures trading has only a brief history of about forty years. It was totally unknown under the gold standard. It started in the early 1970’s at the Winnipeg Commodity Exchange in Canada, when the ban on Americans to own and trade monetary gold was still in force. In 1975 the ban was lifted and trading gold futures shifted to COMEX in New York.
One ounce of gold in 1920 cost $260. Running that through the CPI calculator says it should be $3,456 for that same ounce. I got married in 1973 and the gold bands cost $90/oz for a CPI adjusted value of $512 compared to today’s spot price of $1,544. The last time gold was in the 500’s was 2006, ipso facto the CPI only keeps score, on the low side at that, for the USD, not real money.
When De Gaulle called up Tricky Dick in 1971 and asked for his gold to pay for all that French wine that LBJ & Nixon had purchased to celebrate the ‘Great Society’ and evacuation of ‘Nam,’ Dick stiffed the frogs. Closing the gold window opened the door of the Winnipeg Commodity Exchange and the FOREX casino.
When we were on the gold standard there wasn’t a whole lot of trading going on but the COMEX and FOREX brought Las Vegas to Wall Street with a version of Keno called trading pairs : EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD and USD/CAD. The CNY renminbi is not there because it is a blocked currency or as Trump claims ‘manipulated.’
The big comeuppance in the threat of permanent gold backwardation is the money printing majors and the manipulators are never going to dance the Contango again. The USD and the Federal Reserve have lost their reason for being. Yes, the dollar is still the best of the fiat ‘monopoly‘ money but it takes more and more Federal Reserve notes to buy the same amount of real money, Gold.
The haves, have gold, real estate and no debt; the have-not’s, have no gold, no paid-off real estate, lots of debt and hardly even any ‘monopoly’ money.