Could backwardation happen with gold? Gold is not in shortage. One just has to measure abundance using the right metric. If you look at the inventories divided by annual mine production, the World Gold Council estimates this number to be around 80 years.
In all other commodities (except silver), inventories represent a few months of production. Other commodities can even have "gluts," which usually lead to a price collapse. As an aside, this fact makes gold good for money. The price of gold does not decline, no matter how much of the stuff is produced. Production will certainly not lead to a "glut" in the gold market pulling prices downward.
So, what would a lower price on gold for future delivery mean compared to a higher price of gold in the spot market? By definition, it means that gold delivered to the market is in short supply.
The real meaning of gold backwardation is that trust in future delivery is scarce.
This essay showed up in yesterday's edition of Casey's Daily Dispatch...and is a must read. The link is here.
