Normally futures contracts carry a premium the farther in time you go out, the reason for backwardation is that people do not care if you promise to deliver it in the future, they want the metal NOW! –and they are willing to pay extra for it. As explained in the October Post that most of you read by now. Most of the silver mined for hundreds of years has been consumed, most of the gold is still in a vault somewhere. This is how the shortage will show itself. Check out the 2 charts below.
Silver is in backwardation...and settled yesterday with a difference of 0.6 cents from the March to May 2011 contract. Going out to December 2011...silver is in backwardation by 4.5 cents. The December 2015 contract [which only traded three contracts on both Monday and Tuesday combined] is quoted at $31.837. That's a backwardation of $1.03 from March 2011. Here are the numbers for silver futures. Check out the 'Settle' column.
Gold, is in contango. The settlement for the December 2011 contract was quoted at $1,406.80...and the December 2015 gold contract is quoted at $1,660.10. That's a contango of $259 from the April gold contract...the front month for gold. Here are the numbers for gold futures. Check out the 'Settle' column here as well.
Here is a fellow that I've been following since 2007/2008, he gives a report every week, and recently started a radio program. He was one of the few who foresaw the Financial Crisis, and pin pointed the causes of it.
He talks here about the 'Budget Proposal' for 2012. --and the farce that it he is bringing down the deficit.
If you have never looked at GATA, I strongly suggest doing so. They have so much information, and are on the front lines in many respects. The 2nd link below is a interview with Chris Powell Treasurer/Secretary of GATA.
This is a behind-the-scenes explanation of what happened with ZOMBIE (insolvent) banks in 1982. The situation is similar today, as many banks are carrying bad loans, which only with time will they be able to write off and thus ‘heal’ their unhealthy balance sheets. This is made possible by the changing of FASB mark-to-market rules at the beginning of the crisis, and by a nearly Zero % interest rate policy from the current FED. –any ‘black swan’ event will add to their problems.
Koo worked on the syndicated loan desk at the New York FED in 1982, when the Latin American debt crisis effectively blew up the American banking sector. Here’s what happened, according to Koo…
That was about the worst possible banking crisis in modern US history. Our conclusion was that seven out of eight US money centre banks were actually underwater… It was so bad because everyone down from Mexico to the southern tip of Chile went bankrupt... Paul Volcker, the chairman of the Fed, called central banks and ministries of finance all around the world on that critical Friday in August 1982… Later a Bank of Japan official who took that telephone call from Paul Volcker told me the exact words he used.
He said: “You better give me Governor Maekawa right away. If you don’t give me Governor Maekawa, there might not be any US banks left on Monday.”
What we at the New York Fed had to do was arrange for all the foreign banks to keep credit lines open to the American banks, knowing full well that all these American banks were actually bankrupt. And we also could not tell the outside world about the situation because if you go out and say “American banks are bankrupt” – the next day they will be bankrupt.
And so we had to come up with these stories that “Well, there are some Latin American problems, but they’re all good debt, not bad debt,” and we had to lengthen the clean-up process; it was a very difficult period for US central bankers and bank regulators in general… So by keeping this myth going, that everything is fine… we had to do that for a very long time… the whole process took about 13 years...
As Senator Schumer doesn’t know his 3 Branches of Government correctly, he also doesn’t seem to realize the importance of dealing with the U.S. Federal debt sooner rather than later. --Although he correctly states that any interruption WILL be felt in the credit markets. This should render the federal government unable to borrow as interest rates would increase. Early March is the first opportunity for a showdown on federal debt, will the legislature beat the bond market? -we'll see.
Rand Paul, seeks to reign in the spending
John Boehner says Obama will have to cut back,
Already the Interest payments on the federal debt are expensive, and that is with low interest rates forced by the Federal Reserve (subject of upcoming blog post). Most of the interest payments go overseas, and most of the holders are now foriegn.
If interest rates went from their present low rates (the Federal Reserve has it at .25%) to historical norms, you would have the interest payments increase 200--500% or more. The two graphs above are accurate until 2009, I couldn't find any 2010 graphs but you see that the national debt has increased in 2010 from the graph below;
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Each of the States are all cutting back on spending (facing lower tax revenue), but the Federal government has continued to grow, out pacing the private sector by a large percentage. This debt financed spending by the federal government has boosted GDP, but it is unsustainable, and extracting this spending is going to be painful. See the graphs below for some graphic illustrations of this point.
With continued high unemployement levels, and low salaries, and when the money you do earn buys less and less goods and services, because of inflation, money printing, bail outs, QE etc the consumers with the least extra income will be be squeezed first. Thus until we get a true economic recovery (based on sound money, production and savings), the trend in the graph below should continue.
and prices are rising;
The difference is the public and private sector
Its quite easy to spot the trend here, this spending is in the face of lower revenue, an aging population, a lower savings rate, a devaluation of currencies around the world, inflation seen in food and energy prices, the conclusion; unsustainable.
Someone has to be spending the money, for someone to be receiving the money, when the Federal government is forced (by higher interest rates, or by a vote to not increase the debt ceiling, etc) to reduce its size in the economy, it will have a domino effect, reducing the amount of people it employs, pensions it pays out, and that will impact consumer spending, which will impact housing etc, etc. -better to do this sooner rather than later.
Within the Union there is a move to lower tax States, this will continue to put pressure (higher interest rates/less revenue) on those States, and munipalities that are experiecing this exodus of their local populations.
The boom will be in low tax burden states for individuals and corporations where America will again be able to start producing more than it consumes, and saving more than it spends, this along with sound/hard money (gold/silver/tangibles based) will lead to a true economic recovery.
These graphs speak for themselves. Hedging is when a producer of Silver pre-sells to the market at a price they believe will secure profits. De-hedging is when they reverse that transaction. --producer of silver are doing this because they believe the price will rise and they don't want to be left out those potential profits.
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These two Charts below are a bit out of date (until 2009) but does show the steady increase in demand from the investment community. 2010 was even stronger (see the SLV ETF graph later on this post).
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Below shows the holdings of the worlds largest Silver Trust ETF, you can see clearly here the rising demand into 2010.
