Timely Caution Is Advisable With Your Gold Holdings

In the light of how the MF Global debacle was sorted out by the courts, and based on a growing body of circumstantial evidence and market indicators, if you are holding your gold bullion ‘insurance’ in the form of unallocated or opaque holdings, or a hypothecated paper claim in one of the major exchange trading warehouses, you may wish to take measures to safeguard your ownership claims without much delay. 

I wrote something overnight, On the LBMA and Their Unallocated Holdings, in which I lay out the case, based on facts and some presumably informed speculation from Jim Rickards,  that there is a serious physical shortfall in gold bullion developing that may not resolve as readily as it did in 1999, when the Bank of  England presumably bailed out the trading houses.

Commodity backwardation is not all that unusual.  But it is somewhat unusual in the precious metals. And in combination with a few other items, it seems worthy of note and some preventative measures.

Koos Jansen notes that gold is now in backwardation in both London and New York.

“Not often in financial markets is the future price of gold is lower than the spot price (live), but lately we’ve witnessed such an event in both the New York and London gold market. This is called backwardation, the opposite of contango.

What causes backwardation and will it increase the price of gold? In my opinion there are two possible scenarios: the market expects the gold price to fall in the future, or there is scarcity now.”

You may read the entire article here.

Please note that I am not suggesting that you should rush out and take large long positions in gold with the maximum leverage, pile into penny miners hoping for a ‘home run’. 

I suppose that quite a few will miss this caution since it is not heralded with blaring headlines of imminent doom, but perhaps those who need to hear it will do so.

There is quite a bit of official interest in bailing out these wanton rich boys from their gambling debts and assorted scrapes, as Sir Eddy George of the Bank of England noted in 1999.  And the central banks may rise to the occasion and lease out the people’s gold on the cheap to get them out of this one as well.