MF Global’s failure, Backwardation and Manipulation lead to an acceleration of the gold rush

On his latest show, « The Keiser Report », Max Keiser talks about the consequences of MF Global’s failure, manipulation, and the phenomenon of backwardation, which are now evident in the gold and silver markets.

In the second part of the show (go to 12:30 min. on video), guest Ned Taylor-Leyland clearly explains the facts :

- MF Global’s bankruptcy has created a major shock affecting the behavior of investors.

All the investors who thought they were holding gold or silver through futures contracts, certificates issued by MF Global (or through its intermediary), lost everything when the company went bankrupt. (Read the article of Zerohedge.com here)

Even those investors who had opted to hold physical gold through MF Global and whose bars were stored in secured bank vaults could not retrieve them (even though they were the rightful owners), because they were used (in part) to repay MF Global’s creditors, starting with JP Morgan.

Those investors made three mistakes:

- Not holding physical gold in their own name : MF Global clients have mainly invested in gold and silver through ETFs, certificates and futures contracts.

- They ran the risk of counterparty default by investing through an intermediary, in this case MF Global.

- Having their gold stored in secured bank vaults.

The case of MF Global is quite indicative of the power of the banks: MF Global’s main creditor (in this case, a bank) was able to obtain the forced sale of physical gold stocks (although wholly owned in investors’ names in bank vaults) in order to get refunded by MF Global… even though it is illegal to seize the funds held by a broker on behalf of clients in any bankruptcy proceedings.

A Radical Change in Investor Behavior

Since MF Global’s bankruptcy, which led to over a billion dollars in losses, investor behavior has changed dramatically in its approach to gold and silver markets.

This is what Ned Naylor-Neyland confirms in this interview :

“The direct consequence of MF Global’s failure is that investors are now abandoning futures, certificates and gold/silver ETFs in favor of “physical” metals."

A rush to physical gold and silver is happening, bringing about the phenomenon of backwardation in these two markets.

What Is Backwardation ?

Simply, backwardation happens when the spot price of gold (or silver) is higher than the futures contracts prices. Investors prefer to pay higher to get physical gold right away instead of waiting for one or more months for delivery : the spot price then becomes higher than the futures price.

This reflects a significant tension on the physical market and provides an important bullish signal for both metals.

Market Manipulation

According to Max Keiser and Ned Taylor-Leyland, manipulation is now too obvious to be ignored and, though the experts are now convinced, the public is just beginning to understand the phenomenon.

This manipulation can only take place as long as investors do not invest directly in physical gold or silver. Read my article explaining this manipulation through the issuance of virtual “paper” gold or silver. 

Market manipulation, given the movement to “physical”, cannot last, and its end will send the price of gold and silver to the moon.

This manipulation must be understood in the context of a confrontation between two monetary systems : read my previous article here.

This subject has been studied in detail by GATA, and you can read their articles on this link. 

MF Global’s failure, Backwardation, Manipulation… these Phenomena Lead to an Acceleration of the Rush to Physical Gold and Silver.

(Latest example: Eric Sprott, through his investment fund, has expressed his intention to acquire more than 300 million dollars in physical silver. Read about it here )

At the Geopolitical Level:

We also realize that things are changing in favor of a return to gold as an international reserve currency, while the dollar is being less and less used as an exchange currency.

- China and Japan have decided to stop using the dollar for their bilateral trades.

- Iran and Russia have done the same in settlement of their transactions (PressTV).

- India, last week, announced its intention to pay for Iranian oil in gold.

- Venezuela has just completed the return of 75% of their gold reserves, which were previously stored in vaults in Europe (Bloomberg).

Conclusion :

All these facts provide specific guidance on the monetary changes taking place that will eventually lead to the return of gold as a reserve and exchange currency accepted by all.

The current monetary policies which incur printing exponential amounts of money, which in turn destroys the purchasing power of fiat currencies, will lead to a loss of confidence in all paper currencies…  There is no room for doubt: gold will regain its historical place of international reserve currency.