Morning Gold Fix: July 30 And Contango Crush
Courtesy of Tyler Durden
Submitted by www.fmxconnect.com
Contango Crush?
Yesterdays’ activity showed the Q/V spread coming in while the market gyrated a little higher as this time it was Q longs who were the aggressive liquidators. Rumors however still abound about delivery issues. Observably, the majority of spreads continue to come in as the market rallies. It can’t be emphasized enough. The cost of carry should not come in on a financial spread as the underlying rallies, as evidenced in the Contango Crush here.
For gold: Cost of carry = risk free interest rate + storage costs for the time period.
When a market rallies eight dollars, and bonds are essentially unchanged spreads should move out slightly or remain unchanged. Settlement noise can be forgiven in less liquid markets, but really…..when M12-Z13 comes in by 2.00 I gotta say something is off.
For the last year spreads have behaved appropriately: rallying when the market rallies or bonds collapse, decreasing when the market drops or bonds rally. But for the last month the term structure has over performed to the downside significantly more with less volatility than normal. I think the issue may be real or at least it is being managed like it is.
Word to the wise though. Even if a gold squeeze is coming , the market is far too easy to “manage” by the big guys, so if the risk is real and a squeeze is coming, don’t expect a spectacular move, expect government involvement BEFORE it happens in the back end. Call it Eminent Domain. Like in LTCM, to keep things calmer they might just roll it back and keep deferring the issue out the curve hoping the cyclical nature of the economy solves the problem. Why not, Mark- to-Myth accounting and ZIRP policy give them infinite balance sheets. It’s what their policy is for the whole credit crisis anyway. If that fails, bet on fiscal changes to make owning gold difficult, probably though higher taxes on bullion or something we aren’t thinking of yet.
-Elizabeth Thawne
Summary
Gold opened Thursday’s trading at $1163.8 per 100 troy ounces. Once again, the metal held relatively steady, with minimal volatility in pricing, moving over a range of just over $10. It closed out the day with modest gains at 1168.4.
August gold was up 4.2 to $1172.6 per 100 troy ounces as of 8:46 AM EST, this morning. The September U.S. dollar index was down .059 to 81.695. October platinum was up 0.6 to $1564.0 per 50 troy ounces. Silver was up 25.8 cents to 17.875.
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