(Kitco News) – The liquidity of the gold market is improving, but the gap between spot prices and future Comex prices remains extremely wide. A market analyst said that this persistent problem was more about confidence in the market than supply.
Although there is a large amount of gold on the market, Craig Hemke, a precious metals expert at Sprott Money, said in a comment that there were still concerns about the market. “s supply chain. This lack of confidence explains why investors are not taking advantage of clear arbitrage in the precious metals market.
Thursday, before the long Easter weekend, June gold futures hit a new multi-year high of $ 1,754.50 an ounce, while spot gold hit a session high $ 1,690.33. It’s a price difference of over $ 64. Two weeks ago, the price differential at one time was around $ 100.
Hemke explained that investors could buy 100 ounces of gold in cash and sell a futures contract. Thursday “a peak that would have given an investor an easy profit of $ 6,400 at the end of the contract in June.
“This should be an easy and risk-free trade, and the result should be a narrowing of the spread to near zero. To me, this recurring spread between the spot futures contracts and the June futures contracts is a sign of continued tightening and, more importantly, loss of confidence in the fractional reserve pricing system, ”said Hemke. “The only reason someone would not immediately execute the arbitrage trade described above is for fear that you may not have the 100 ounces on hand when the time comes to deliver it in June. ”
Although many analysts have focused on the gold supply crisis, Hemke said the same scenario is also playing out in silver.
On Thursday, silver futures reached a one-month high at $ 16.09 an ounce. Meanwhile, cash rose to $ 15.45 an ounce, a spread of 64 cents.
“Is the problem that” the money is just in the wrong place “too? Or again, is it a crisis of confidence,” he said. ” there is not enough confidence that the money purchased locally today will be delivered in time to be delivered to New York in three weeks. ”
Hemke also noted that wide spreads in gold and silver could lead to market manipulation, as companies or banks would just need to sell a little more physicality to widen the spread to an opportunity. sufficiently attractive arbitrage, which would send gold and silver paper crashing lower.
Although liquidity concerns persist in the precious metals sector, Hemke said investors simply need to be patient, as prices will ultimately rise.
“Fleeing rallies can be difficult to maintain, but awareness [QE-infinity] is on us will continue to provide an offer for gold and silver in all their forms, “he said.
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