Wednesday, February 23, 2011

Backwardation & Contango

Backwardation & Contango
Normally futures contracts carry a premium the farther in time you go out, the reason for backwardation is that people do not care if you promise to deliver it in the future, they want the metal NOW! –and they are willing to pay extra for it. As explained in the October Post that most of you read by now. Most of the silver mined for hundreds of years has been consumed, most of the gold is still in a vault somewhere. This is how the shortage will show itself. Check out the 2 charts below.
Silver is in backwardation...and settled yesterday with a difference of 0.6 cents from the March to May 2011 contract. Going out to December 2011...silver is in backwardation by 4.5 cents. The December 2015 contract [which only traded three contracts on both Monday and Tuesday combined] is quoted at $31.837. That's a backwardation of $1.03 from March 2011. Here are the numbers for silver futures. Check out the 'Settle' column.
Gold, is in contango. The settlement for the December 2011 contract was quoted at $1,406.80...and the December 2015 gold contract is quoted at $1,660.10. That's a contango of $259 from the April gold contract...the front month for gold. Here are the numbers for gold futures. Check out the 'Settle' column here as well.

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