When the spot price of gold is higher than the future price, it's a rare occurrence called "backwardation." James Turk from GoldMoney.com says, "The weird thing that has happened and it's never happened in history, when the gold price was driven down last year to its lows in June 2013, gold went into backwardation, and since then, it has been in backwardation more than 50% of the time. The only other times backwardation occurred were in 1999, with the lows in gold, and 2008, with the lows in gold. After both of those backwardations, the gold price soared."
Turk, who recently co-wrote a book called "The Money Bubble," goes on to say, "Sooner or later, we are going to go over the cliff as we did in 2008. They saved the system, the system in 2008, but I don't think this time around they are going to be able to save the system. So, you have to prepare for it."
By Greg Hunter’s USAWatchdog.com Gold expert James Turk says the Ukraine crisis can affect the price of gold. Turk says, “Whenever there is global tension, people go to safety, and one of the greatest safe havens of all-time has been gold. It’s been money for 5,000 years, and it’s still money and still a safe haven because it’s money that doesn’t have counter-party risk. . . . Gold does respond to geopolitical tensions, and I must admit the situation in Ukraine is getting more serious. I would not be surprised if the tensions continued to rise.” So, could this be a trigger to cause distress in the global financial community? Turk contends, “Yes, it really could. This could blow out of proportion very quickly, and it would be much more serious than what happened in the Balkans where there was a shooting war. What’s happening here is you are talking about a major economic power and the use of sanctions. In WWII, one of the causes of friction between the United States and Japan was the economic sanctions the U. S. imposed on Japan because of their incursions in China. It is eerily similar to what is happening now with Russia, and I think the stakes are just as high when you are talking about two major powers confronting themselves this way.”
As far as ratcheting up sanctions, Turk worries, “To do it in an environment where economic conditions in both the United States and Europe are very weak is even more worrying. You just do not have the economic base as you would during a period of strong economic activity. You have to remember these sanctions can bite home. People living in glass houses should not throw stones, as the old saying goes. The issue here is there is so much debt and counter-party risk between various players in the global economy that it has a knock-on effect, and we just don’t know how that knock-on effect is going to play out. If you look back to 2008, during the financial collapse then, we saw Bear Stearns get into trouble and then some European banks get into trouble and, ultimately, Lehman . . . fell apart and collapsed, and that had a knock-on effect as well. We just don’t know how it’s going to play out, but it is very worrying to see these threats of economic sanctions and imposition of economic sanctions and this war of words. It is potentially very serious.”
Turk goes on to say, “Back in 1999, gold was $250 per ounce, and the gold price has risen just over five times. Likewise, crude oil was $20 a barrel back then, and it also has risen five times since then. So, an ounce of gold still buys the same amount of crude oil as it did in 1999. So, if you get geopolitical tension and Russia threatens to do something on the energy issue, crude oil will go up and gold will go up as well. . . . The central banks can’t keep the gold price down if the oil price goes up.”
On central banks running out of gold this year, Turk says, “There are two things I am looking at. There are reports of lots of old gold bars coming out of the vaults and going into the refiners being turned into kilo bars for shipments to Asia. The fact that these are old bars that were refined thirty, forty, fifty years ago suggest they are at the back of the vault and not at the front of the vault where the newly refined bars would be. More importantly is the backwardation we are seeing in gold. . . . In other words, the spot price is higher than the future price of gold. . . . The weird thing that has happened and it’s never happened in history, when the gold price was driven down last year to its lows in June 2013, gold went into backwardation, and since then, it has been in backwardation more than 50% of the time. The only other times backwardation occurred were in 1999, with the lows in gold, and 2008, with the lows in gold. After both of those backwardations, the gold price soared. Backwardation is occurring because central banks are emptying out their vaults to try to keep the gold price from rising and to keep inflation looking low and to keep the economic conditions looking good. There is only so much gold that exists in central banks’ vaults. The fact this backwardation has been going on so long suggests to me that we’re pretty close to the point in time where the central banks are going to say ‘no more.’ We are not going to empty our vaults in the West to ship gold to the East. . . . My guess is it’s going to happen this year.”
Turk, who recently co-wrote a book called “The Money Bubble,” goes on to say, “Sooner or later, we are going to go over the cliff as we did in 2008. They saved the system, the system in 2008, but I don’t think this time around they are going to be able to save the system. So, you have to prepare for it. . . . Focus on real wealth; avoid Treasury bonds, any kind of financial asset. If you are going to own shares, own shares of a company that creates real wealth such as oil companies, agricultural companies and things of that nature. The best thing for the average family is to focus on your shelter. Make sure your house and land are secure. Then, start focusing on other types of tangible assets such as gold, silver and even things that you use around the house.”
- Source, USA Watchdog:
That backwardation has been happening as long as it has, and we are hearing these reports about old bars coming out of the deepest recesses of various (Western) vaults -- these are bars that were marked and minted back in the 1960s or before -- so the easy-to-get at gold is gone. And now they are starting to go in to the deeper reaches of the vaults to get material out to keep feeding the (physical) market because the demand is insatiable for physical metal down here at these low prices.
Gold is undervalued. It still has the utility it’s always had for 5,000 years -- it’s money outside of the banking system and a tangible asset with no counterparty risk.’ And when we get through this the gold price will just take off as it did after previous backwardations in 1999 and the low in 2008.
So a little bit more patience is required, but ultimately, I think this is going to be a good year, Eric. The first quarter we were up 7 percent in the gold price. We are down here in April but I think by the end of the year it’s going to be a good year for gold and silver.
