Title: Mcgowanjm Wire 2012 Source:
[None] URL Source:[None] Published:Feb 26, 2012 Author:Various Post Date:2012-02-26 09:15:13 by A K A Stone Keywords:None Views:1373792 Comments:2390
The concept of backwardation is simple. It is when people accept a future promise to deliver only at a discount to physical stuff handed over right now. This could be when there is a shortage, such as wheat before the harvest. Or in the case of gold, backwardation signifies a collapse in trust. But isn’t this the same phenomenon of a tectonic rift between paper dollars and electronic deposits?
In a certain sense, the “money you can fold” behaves like a physical commodity, a present good (I realize I am stretching the concept here more than a bit). The electronic deposit credit is most definitely a future promise. In my gold backwardation thesis, the action begins with the offer on the futures contract falling below the bid on spot gold. The bid-ask spread on spot gold widens, as the offer is relentlessly advancing, pulling the bid behind it.
