The Oil Futures Crash Is A Warning To Gold Speculators

Regardless of whether the market was manipulated, the deeply negative futures price was disconnected from physical reality.

Nobody could call up an oil producer and expect to be able to buy barrels of oil for less than nothing because of a negatively trading futures contract. No oil company announced to investors that its oil assets had suddenly become liabilities because of a negative futures quote. In fact, energy stocks traded higher this week.

Although many oil producers are losing money at the moment, it’s not because they are literally selling oil at a negative price. It’s because their production and storage costs are exceeding the real-world prices they can fetch for their product.

And that real-world price is now in the teens per barrel. The absurd negative $37 figure on a particular futures contract was never seen as a credible gauge of the global value of physical oil.

The credibility of the gold and silver futures markets is also being called into question. Earlier this month the spread between COMEX gold futures and the London so-called spot price grew to a record high of more than $80.

Something strange is going on. The COMEX and London markets curiously changed their rules to allow 400-ounce gold bars located in London to be substituted for delivery of 100-ounce bars in satisfaction of U.S. contracts, actions which have drawn the attention of Congressman Alex Mooney of West Virginia.

Rep. Mooney is now demanding the CFTC explain why U.S. markets are permitted to carry so little deliverable physical gold and silver to back the exchanges. If there are widespread defaults, it could throw the entire financial system into chaos, Mooney warned.

At the same time, an enormous divergence between spot prices and the prices on bullion coin, bars, and rounds have developed.

So what is the real price of gold? What is the real price of silver?

The answer is that it depends on the form in which it is traded. Paper contract settlements carry one price. Bullion bars carry another. And American Eagles carry yet another.

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Dick Kaplan 5 months ago Member's comment

Not related at all. Demand for #gold is going up while demand for #oil plummets.

Sheryl Morris 5 months ago Member's comment

I would think so, yes.