What does backwardisation mean for silver?

Antal E. Fekete, a professor at Intermountain Institute of Science and Applied Mathematics, and frequent writer on precious metals, answers a timely question:

Q: People from around the world keep asking me what advance warning for the collapse of our international monetary system, based as it is on irredeemable promises to pay, they should be looking for.

A: My answer invariably is: ‘watch for the last contango in silver’.

It takes a little bit of explaining what this cryptic message means. Contango is that condition whereby more distant futures prices are at a premium over the nearby. The opposite is called backwardation which obtains when the nearby futures sell at a premium and the more distant futures are at a discount.

When contango gives way to backwardation in all contract spreads, never again to return, it is a foolproof indication that no deliverable monetary silver exists.

Silver price hike

Thank you professor! This is really an extension of the argument on this website dating back to before the summer rout of precious metal prices.

Physical stocks are low and the futures price has been distorted by big hedge fund forced-sales – now we are coming to the day of reckoning when the physical shortage starts to determine the spot price, and not the futures market.

The upside – which should have been there all along – will now come back with a vengeance and smash the few remaining shorts. This is likely to be spectacular – but after the culling of bulls recently not all precious metal fans will be there to benefit.
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