December gold default will spark US dollar collapse?
Gold futures are traded at the COMmodity EXchange (COMEX). A future is a contract to buy a specific amount of a commodity at a specified price, with delivery at a specified time in the future. For some time now something strange is going on with the gold price. Physical gold is wanted, there’s a high demand, but at the same time, supply is low. The gold price should be higher than it actually is. The reason is that the gold price reflects mostly the trade of gold that only exists on paper, not the physical metal. Something similar is happening with silver. Analysts think a correction will follow soon, with the risk it will spark the collapse of the US dollar.
December is traditionally a month with high demand for physical gold, it’s likely that many buyers of December futures want a delivery of the shiny metal. But, there is probably not enough gold to satisfy all buyers. Suddenly the gold price will no longer reflect the trade in gold on paper, but the trade of real, physical gold. With high demand and low supply the gold price could go through the roof and because the US dollar is used in the trade of gold, the value of the dollar goes down. It could start a widespread panic, starting a massive dollar sell-off, causing the dollar to drop even more. More panic follows and the end result is a collapse of the currency.
The last trading day for December COMEX gold and silver futures was yesterday, November 28 is the first day to take delivery, December 29 the last day. A failure to deliver could happen between these dates.
In the future market the term backwardation is used, this when the price of a commodity for future delivery is lower than the spot price for immediate delivery. Gold goes rarely into backwardation, but last Friday it happened for the first time in years. When gold goes into backwardation, the market is worried about a failure to deliver or a currency collapse. Perhaps we will witness both, soon.
I buy a lot of precious metals and I noticed this odd trend lately. Usually when the economy is bad, gold prices go up. Here we have the opposite
Found this fictional story how a collapse of the dollar plays out. If the dollar falls for real, we probably can expect that at least some of the stuff described will become reality. Read here:
http://www.dailypaul.com/node/74109
Wow, you sure are a good one!
Great post!
A little more on this.
Lately there has been talk about the possibility that some countries, especially Russia, will do their best to kill the COMEX gold trade. Russia lost a lot of revenue because of the falling oil prices and suffered damage on their financial and property markets, the Russians feel the US is to blame for it. On top of that, the price manipulation on the gold market that’s going is pulling down the worth of their gold, Russia has aquired a large amount of the metal. The angry Russians definitely have something to gain if they blow up the COMEX paper trade, higher gold prices, a better position of their own currency, and accelerating decline of US influence in the world.
A small update on the recent backwardation of gold. We already knew it happened on Friday, now more data is available and it turns out that backwardation also happened on Thursday and last Monday. There are three things that signal a currency collapse: deflation sets in as prices drop compared to gold; supply of physical gold declines; gold futures go into backwardation. The first two are happening already for a while, now the third one becomes reality too.
[...] gold default: update As reported earlier on this blog, there is a chance of a COMEX gold default this month. Analysts fear the amount of [...]