Minyanville:

Unlike other commodities, gold very rarely goes into backwardation: This only occurs when 1) The market fears a collapse in the currency., and/or 2) The market is worried about counterparties making good on their promise to deliver gold (which was briefly the case in 1999, when the Washington Agreement was announced and shorts were squeezed).

This morning, gold officially went into backwardation for the first time since the announcement of the Washington Agreement in 1999, which sent gold shorts scrambling to find physical metal after the world’s major central banks agreed to limit sales of gold going forward and ending the one-way trade to the downside in gold that had been in place in the late 1990s.

Buckle up, gold bulls. Gold is about to begin a melt-up, in my humble opinion.

Here is some more bullish demand news:

Gold reaches record demand

Demand for gold reached a record high in dollar terms in the third quarter of this year at US$32 billion amid the turmoil in financial markets. According to the World Gold Council, demand for gold jewellery has also been strong, especially in Asia. Marcus Grubb, managing director, Investment Research, World Gold Council, said: "Early Q4 numbers were quite strong in India; China looks quite strong as well. Of course, we are concerned that gold demand will reduce in Asia because of the effect of the recession and it’s really starting to hit.

Perth Mint suspends gold orders due to overwheleming demand

With retail and wholesale clients around the world stocking up on the precious metal, the Perth Mint has been forced to suspend orders.

As the World Gold Council reported that the dollar demand for gold reached a quarterly record of $US32 billion ($50.73 billion) in the third quarter, industry insiders said the race to secure physical gold had reached an intensity that had never been witnessed before.

Perth Mint sales and marketing director Ron Currie said the unprecedented demand had forced the Mint to cease orders until January, with staff working seven days a week, 24-hour days, over three shifts to meet orders.

He said Europe was leading the demand, with Russia, Ukraine, Middle East and US all buying — making up 80 per cent of its sales. One European client purchased 30,000 ounces for $33 million.

"We have never seen this before and are working right at capacity. And we are seeing it from clients in the shop buying one ounce, right up to 30,000 ounces from overseas clients," Mr Currie said.

Robert Jaggard, manager of bullion and rare coins dealer Jaggards, said business had picked up strongly and he expected it to increase further.

"All around the world there has been a heavy run on physical gold and there is a shortage of supply," he said.

My comment: This what we have been expecting all along as more people figure out what is going on they want the safety and stability that gold has provided for 5000 years. It is difficult to say at this point where this will end up but it is encouraging to see record demand for gold even as the price continues to drop. The gold stocks are up almost 20% today and once again have shown their leverage to the gold price.

John Polomny
The Real Deal